The Weekly Hash: Strong Hash Spreads™ suggest right time to hedge price and difficulty risk

Transaction Fee (Tx Fee) growth last week proved transitory: the rapid decline in Hashrate leading up to the prior Difficulty reset (down 16%) led to falling daily blocks and confirmation delays. These bottlenecks led to higher transaction fees that peaked at ~28% of total miner rewards and now stand at 14.5% of total rewards.

Bitcoin mining profitability is strong, but off recent highs because of lower Tx Fees.

Bitcoin price was up 9.4% on the week, ending at $15,319 (midnight UTC, 11/10), while Hashrate is down marginally at 122 EH/s. As a result, daily revenue per PH/s is up $14 / day to $134, with the higher BTC price partially offset by lower BTC earnings in the form of Tx Fees. Daily revenue per MWh is $147, using latest generation S19-class rigs, off from a peak of $165 but up $16 from last week. Our power consumption estimate remains unchanged at 5.5GW.

The BitOoda North American Hash Spread™ is now $109.86.

We define the BitOoda Hash SpreadTM 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 $109.86 across 8 power markets, which is ~$18 wider than a week ago.

Even older generation S9-class devices now have a positive hash spread of $4.33 / MWh. S17-class devices, the bulk of the current installed base, see a hash spread of $70 / MWh.

Daily BTC flow / PH/s is 8.77mBTC, up 0.43mBTC.

While block rewards per PH/s are up to 7.49mBTC (milliBTC or 1/1000 BTC, a metric we like because it avoids too many decimal places) vs. 6.30mBTC prior to the last reset, overall rewards only rose by 0.43mBTC because the decline in Tx fees / PH/s.

The outlook for Hash and Difficulty remains bullish.

Industry contacts tell us that both Micro BT and Bitmain, the largest hardware suppliers, are fully sold out through 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.

Increased Tx Fees as demand for block space grows due to higher adoption and a sustained rise in BTC price would be required to extend the current period of elevated profitability. Tx Fees are a function of both demand for transaction confirmations and supply of blockspace (number of blocks x size of each block). A sustained increase in Hashrate reduces periods of blockspace supply constraints, which we witnessed over the past 2 weeks; demand growth remains the primary long-term driver of Tx Fees and thus the main swing factor determining miner revenue and profitability.

Takeaways

Robust Hash Spreads are supportive of sustained Network Hashrate growth, but remain constrained by equipment supply.

Mining power consumption of 5.5GW 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 hedge price and difficulty risk and lock in advantageous levels of revenue / PH/s and MWh.

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