The Weekly Hash, 9/9/21: Coinbase Wells Notice, El Salvador Bitcoin Adoption Spark Volatility

Bitcoin dropped 5.1% week-on-week (WoW), settling at $46,187 as of midnight UTC on 9/8. Price had steadily climbed, showing strength beyond $50,000 for a few days before this dip. There appears to be a bit of sell-the-news going on, with an initial catalyst being El Salvador’s adoption of Bitcoin as legal tender.

This was followed by news that the SEC has delivered a Wells notice to Coinbase. Our past experiences with Wells notices in our equity research coverage universe suggest that at minimum this may prove a distraction for management that could take several quarters to resolve. More broadly, this is emblematic of accelerating regulatory scrutiny of the crypto space that could refocus investor interest on Bitcoin and away from alt coins. While the U.S. regulatory posture on Bitcoin is far from settled, the CFTC’s view of BTC as a commodity and the availability of compliant products on the CME position Bitcoin well for institutional investors seeking exposure to the asset class.

Total BTC earnings per PH/s are ~6.94 mBTC, down from ~7.28 mBTC / PH/s last week on Tuesday’s reset (1mBTC or milliBTC = 1/1000 BTC), when difficulty rose ~4.5%. The target Hashrate is now ~132 EH/s, while the current observed Hashrate is about 136 EH/s. Transaction fees dropped 34 bps WoW to 1.6% of miner rewards, or 0.10 BTC per block, with only 7,000 pending transactions in the “Mempool”.

Bitcoin mining revenue dropped to $321 / PH/s per day and $350/MWh following the difficulty reset, along with spot and power price decreases.

The BitOoda North American Hash Spread™ dropped 9.8% from $349 to $315. This rise can be attributed to average national power prices falling slightly compounded with spot losses. 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 $34.81 / MWh leads to an aggregate spread of $315.

Older-gen S9-class devices saw their Hash Spread™ down ~11% to $64/MWh. S17-class devices, the bulk of the installed base, saw a hash spread of about $221/ MWh.

The 132 MWh required to mine 1 BTC with S19-class rigs (up 5MWh since last week) translates into $4,597 in power expense. It costs $16,340 using S9 rigs, a ~65% margin, excluding labor. Thus, power costs range from 10–40% of revenue, depending on the hardware generation in use.

Current Bitcoin price allows strong margins capable of absorbing spot and power price fluctuations, even using older-gen S9 rigs. Direct labor costs in the US equate to about $7–10 per MWh at scale, but significantly more for small operations that still need to staff for just a few MW of capacity.

Takeaways

Regulatory scrutiny underscores our view that Bitcoin is the most institutionally investable crypto asset

While distracting for incumbents such as Coinbase, regulations are a critical element in the maturation of the overall landscape and the broader evolution of the digital asset ecosystem

Mining margins remain strong, though lower than before the last difficulty reset

We assess this presents an opportunity for US-based miners to gain share and acquire capacity and new hosting customers at attractive terms

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