Updated Bitcoin Hashpower Estimate: Lowering Estimate to 145 EH/s by Year End on China Ban, Power Infrastructure Bottlenecks

A key factor determining investment returns from Bitcoin mining is an estimate of future Hashrate and difficulty. Whether directly investing in Bitcoin mining assets or in mining stocks, this estimate is critical. The mining investment’s share of future Hashrate determines future Bitcoin earnings. Our “Bitcoin Reserve” metrics estimate the BTC expected to be mined by 1PH/s (7.2BTC) and 1MW (315BTC), operating through 2030.

We assess Hashrate could recover to 145EH/s by year end 2021, versus our prior 241 EH/s estimate. This is a significant downward revision, as China’s mining ban has taken roughly 50% of capacity offline.

The ongoing Chinese government crackdown on mining has resulted in observed Hashrate falling as low as 64 EH/s, although it has since recovered to 100 EH/s. We had estimated Chinese capacity at about 50% of worldwide capacity in July last year, somewhat lower than other estimates we have seen. With mining in China now shut down, we expect Hashrate growth to lag previous estimates until power infrastructure outside of China catches up.

In our view, a lack of power infrastructure currently constrains the industry — a shift from the previous semiconductor shortage. This is the result of the migration of miners out of China, who are looking to relocate to North America and elsewhere in the world. Current high-tension infrastructure cannot support incoming shipments, and thus many rigs now have nowhere to go. We assess that this power constraint will ease by 2024, after which the industry will once again be limited by the semiconductor market (mining economics aside).

We expect an inventory glut in the market, as wafer start commitments with foundries outstrip rig deployments in the market by ~93,000 wafers. Power infrastructure coming online by late 2022 / 2023 could flush the inventory, albeit at lower prices. Commissioning of infrastructure will lead to broad rig deployments and 2023 Hashrate acceleration.

Several variables could cause delivered Hashrate to vary from our estimates. The boundary conditions that combine to define the limits achieved by Hashrate include:

1. Total Bitcoin mined daily, including Transaction Fees.
2. The price of Bitcoin and associated mining profitability — Hashrate cannot sustain an increase beyond the marginal cost of production.
3. The available power supply — Hashrate is constrained by stranded power availability, grid stabilization / controllable load functionality, and the political climate across local and national jurisdictions. Replacing any lost Chinese power elsewhere will face delays owing to transformer / substation lead times, assuming rigs are permitted to relocate.
4. Advances in semi technology, which can influence power consumption per unit of hash, as well as amount of hash per unit of physical size of the underlying semiconductor.
5. Availability of semiconductor capacity is a key constraint. The main rig makers have migrated to the latest process nodes, competing for scarce wafer capacity with the large players like Apple and Qualcomm, in a foundry industry seeing major shortages.

While the price of rigs is a constraint, we view it as a dependent variable on the overall price and profitability of mining Bitcoin.

Takeaways

• We expect 145H/s Hashrate by year end, with risks skewed slightly to the upside
• Bottom-up analysis suggests 100–150k wafer starts per year to achieve our long term Hashrate estimates, with a near-term 90k wafer inventory glut
• Our “Bitcoin Reserve” stands at 7.2BTC / PH/s and 315BTC/MW through 2030
• Paid subscribers can access our full report with detailed build up to our estimates. Contact info@bitooda.io for more information.

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Analyst Certification

Sam Doctor, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships.

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