Mining Hash Price Bear Market

Hash rate is down over the last month, hash price is near all-time lows and public miner equity continues to underperform bitcoin.

Hash Price Bull And Bear Markets Review

In today’s issue of Bitcoin Magazine Pro, we are giving an update on the state of the mining industry. In our Miner Equity Performance Cycle issue, released on May 24, we covered the concept of hash price bull/bear markets and the effectiveness of using it as a tool for evaluating investment into bitcoin mining, in public markets as well as for physical ASICs. 

Let’s revisit the concepts covered in May’s issue (excerpt from Miner Equity Performance Cycle), 

Investing in Public Bitcoin Miners 

Investing in publicly traded bitcoin miners carries risks that buying bitcoin itself does not, due to the operational risk as well as the reality that public equities trade at multiples of future expected earnings. During environments where Treasury yields rise significantly, this causes earnings multiples to fall, which is why equities as a whole have performed poorly over the course of 2022.

However, the dynamics involved with evaluating publicly traded bitcoin miners is a bit different. Unlike other “commodity” producers, bitcoin miners often attempt to retain as much bitcoin on their balance sheet as possible. Relatedly, the future supply issuance of bitcoin is known into the future with near 100% certainty.

With this information, if an investor values these equites in bitcoin terms, significant outperformance against bitcoin itself is achievable if investors allocate during the correct time during the market cycle using a data-driven approach. 

When is the optimal time to invest in publicly traded bitcoin miners? 

An extremely simple framework for investors is: 

Hash price bull market = Bitcoin miners outperform bitcoin

Hash price bear market = Bitcoin miners underperform bitcoin

So let’s revisit where we are today. Over the last 30 days, hash rate has fallen by 4.96% to a seven-day average figure of 206.69 EH/s, with two of the last three difficulty adjustments coming in negative.

As the price of bitcoin has cratered in recent weeks, hash price (daily miner revenue per terahash) has fallen with it, now at $0.086, nearing the all-time low figure $0.070 set in the summer of 2020.

As stated previously, hash price and the valuation of mining equipment/operations are extremely correlated. If you expect hash rate to appreciate relative to the price of bitcoin over a given period of time, it is not an attractive time to buy bitcoin, and vice versa. 

Shown below is hash price since the start of 2022, with the value of publicly traded miners denominated in bitcoin shown in the bottom pane.

Notice a correlation?