The Weekly Hash, 11/18/20: Price increase driving robust Hash Spreads™, offset by Tx Fee drops

Transaction Fees (Tx fees) are now 8.5% of miner rewards, down 602bps week-on-week (WoW). Hashrate has grown steadily at the same time. Following the Difficulty reset on Monday, daily rewards have fallen meaningfully as network congestion has eased.

Bitcoin mining profitability increased this week despite lower Tx fees.

Bitcoin price was up 15.4% on the week ($2300), standing at $17,682 as of midnight UTC on 11/17 vs. $15,319 a week ago, and rose further to $18,175 at the time of writing. Hashrate is up 12% WoW to over 137 EH/s. As a result, daily revenue per PH/s is up $4 / day to $138, with the higher BTC price partially offset by lower BTC earnings in the form of Tx fees. Daily revenue per MWh is $151 using latest generation S19-class rigs, off from a $165 peak but up $4 from last week. Our power consumption estimate is at 6.4GW.

The BitOoda North American Hash Spread™ is now $114.

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. EIA data shows a weighted average peak/off-peak U.S. wholesale industrial power price of $36.95 / MWh, leading to an aggregate spread of $114 across 8 power markets, ~$4 wider than a week ago.

Even older generation S9-class devices now have a positive hash spread of $5.5 / MWh. S17-class devices, the bulk of the current installed base, see a hash spread of $73 / MWh.

Daily BTC flow / PH/s is 7.81mBTC, off 0.96mBTC.

While daily block rewards per PH/s fell to 7.15mBTC from 7.49mBTC last week (milliBTC or 1/1000 BTC, a metric we like as it avoids too many decimal places) overall rewards fell to 7.81mBTC from 8.77mBTC a week ago, owing to both rising difficulty and the decline in Tx fees / PH/s.

Price appreciation supports bullish outlook for Hash and Difficult.

Industry contacts tell us that both Micro BT and Bitmain, the largest hardware suppliers, are fully sold out well beyond April 2021. As we have discussed previously, miners prepay for equipment owing to the large deposits required by semiconductor foundries such as TSMC and Samsung to reserve wafer production capacity.

While Hashrate growth cannot be accelerated meaningfully due to supply chain constraints, we believe that the silicon order book remains robust enough to keep our prior projections of 260EH/s of network Hashrate by Summer 2021 intact.

The current strong Hash Spreads drive internal cash generation for miners. This allows for higher self-funded growth, but we believe the capital needs remain high as miners attempt to further accelerate capacity growth to take advantage of faster payback periods. At the same time, we believe that price and / or Tx Fees would need to grow faster than the projected ~100% Hashrate growth over the next 8–10 months to extend the current period of robust profitability.

As we noted, although BTC price appreciated 15.4% WoW, the Hash Spread™ only expanded 3.8% — a key reason we continue to advocate that miners take some risk off the table while locking in robust returns.

Takeaways

Robust Hash Spreads ($5.50, $73.40 & $114.02 for S9, S17 and S19 class rigs, respectively) are supportive of sustained Network Hashrate growth; constrained by equipment supply.

Mining power consumption of 6.4GW is well below capacity, further supporting Hashrate growth and allowing room for older-generation rigs to operate when Hash Spreads are positive.

We continue to advise clients to take some risk off the table while locking in advantageous levels of revenue / PH/s and MWh. Email us at info@bitooda.io to discuss how we can help manage your risk.