The Weekly Hash, 9/27/21: Chinese Ban Puts ASIC Rig Supply in Flux; Opportunity for Western Entrants

Bitcoin fell 8.7% week-on-week (WoW), settling at $43,131 as of midnight UTC on 9/26. This caps a volatile week that was marked by an expanding ban on mining and all cryptocurrency transactions in China — with the notable exception of the digital yuan or eCNY — as the Chinese government gears up for broader testing and ultimately the deployment of the official stablecoin.

Enforcement actions are likely in China: the orders last Friday were issued by the People’s Bank of China, the supreme court, the police, and the internet and securities watchdog organizations, as well as several other government entities. Thus, we believe there is broad latitude in jurisdiction, likely resulting in more aggressive enforcement against exchanges and other financial services providers offering (or inadequately monitoring) products available to mainland China customers.

There could be implications on rig availability for miners worldwide: as we discussed last week, this may free up mining rigs in the secondary market. Chinese miners who either held onto their rigs hoping to be able to plug them back in, or who have future scheduled deliveries and may be unable to receive them, could add supply to the market, potentially lowering rig prices for Western miners. However, it remains to be seen whether there could be actions against the rig makers, including MicroBT and Bitmain. While the chips are sourced from Korea and Taiwan, with much of the assembly in Thailand and Malaysia, most of the design teams and support staff are domiciled in mainland China, as are the companies themselves. This could pose longer term challenges to both rig availability and the pace of innovation, opening a window of opportunity to emerging western fabless rig design firms.

Total BTC earnings per PH/s are ~6.68 mBTC, down from ~6.88 mBTC / PH/s last week on decreased Tx fees (1mBTC or milliBTC = 1/1000 BTC). Transaction fees gained 13 bps WoW to 1.0% of miner rewards, or 0.06 BTC per block. The “Mempool” currently sees low congestion levels, with ~7,000 pending transactions.

Bitcoin mining revenue fell to $288 / PH/s per day and $314/MWh, following price movement, though losses are softened by decreased national power prices.
The BitOoda North American Hash Spread™ fell 7.9% from $312 to $287.
As noted previously, the network has mostly normalized from recent events, and we expect Hashrate to slowly recover to track our previous estimates. We define the BitOoda Hash Spread™ as the difference between the cost of power per MWh and the Bitcoin mining revenue per MWh. This gives miners a quick sense of the surplus generated by their business to cover personnel, overhead, depreciation, and profit. The weighted average around the clock U.S. wholesale industrial power price (5 markets) of $26.97 / MWh leads to an aggregate spread of $287. Older-gen S9-class devices saw their Hash Spread™ up ~7% to $61/MWh. S17-class devices, the bulk of the installed base, saw a hash spread of about $203/ MWh.

The 137 MWh required to mine 1 BTC with S19-class rigs translates into $3,700 in power expense. It costs $13,151 using S9 rigs, a ~70% margin, excluding labor.

Takeaways

The China mining and crypto ban could inhibit Hashrate growth, resulting in higher revenue in BTC vs. the prior trajectory

Pricing and access to rigs remains in flux; credit exposure to rig makers is a risk factor

Mining margins remain attractive for US-based miners

We see an opportunity for emerging western fabless rig designers to gain share

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