Pt 2: Hash Rate Hits New All-Time High - Implications For Mining Equities
Bitcoin’s hash rate endured a series of significant price drawdowns, yet emerged higher than before. We review the recent explosion in hash rate and look at potential implications for the industry.
Relevant Past Articles
Part 2
In the Celsius collapse, Celsius Mining also filed for bankruptcy back in July. That said, it’s clear from the recent Compute North’s bankruptcy that the pressure is still on large-scale miners.
Public miners aren’t out of the woods yet and we’ve been hesitant to call for an end of miner capitulation this cycle as price has stagnated and hash price (miner revenue divided by hash rate) continues to face some strong headwinds with this level of hash rate expansion playing out.
After making a new all-time high, mining difficulty saw a decent-sized negative adjustment of 2.14% right before this explosion in hash rate over the last week. But that looks to be all short-term relief because as of now, the next projected difficulty adjustment is looking like a vicious 13.5% positive adjustment at the time of writing. We haven’t seen that level of adjustment since right after the Chinese mining ban. That type of adjustment would be bad news for existing miner profitability as hash price would come under further pressure.
Source: https://www.bitrawr.com/difficulty-estimator
As hash rate continues to rise while bitcoin consolidates around $20,000, hash price, which standardizes miner revenue against hash rate, is nearing all-time low levels. Shown below are the all time charts of hash price (Miner Revenue per TeraHash) and daily miner revenue, denominated in USD and BTC.
The major noticeable difference between the two charts is that miner revenue in bitcoin terms is programmatically decreasing as new issuance trends towards zero with each subsequent halving.
In bitcoin-denominated terms, hash price is simply a staircase downwards as each upwards difficulty and quadrennial halving event decreases relative miner revenue. For some context, here is how brutally competitive the bitcoin mining landscape is: shown below is bitcoin-denominated miner revenue, hash price (Miner Revenue per TeraHash) and mining difficulty since 2016, all in linear scale.
In bitcoin terms, your revenue has not only been severely diminished with two halvings, but if you didn’t grow your effective hash rate for your operation by a factor of 300, you lost relative market share to other operations. Brutal.
It takes incredible operational excellence to continue to excel in the bitcoin mining industry over multiple cycles.
This is why bitcoin mining-related equity investing can be either extremely lucrative (if you choose one of the winners) or downright disastrous.
In our December 21 piece last winter, we said the following,
“What you should gather from evaluating the performance of publicly-traded miners against bitcoin itself is that due to the capital structure of their business and the valuations present in equity markets, miners can and likely will outperform bitcoin over periods when hash price rises significantly.
However, over the long term the revenue in bitcoin terms for every mining company is guaranteed to decrease in bitcoin terms, and due to the excessively large earnings multiples that companies currently trade with in equities markets in a zero interest rate world, even bitcoin mining equities trend to zero over time in bitcoin terms (once again, due to the equity multiples assigned in a zero interest rate fiat-denominated world).”
Since that point, the share prices of publicly traded mining companies are all down significantly when measured against bitcoin itself.
This should come as no surprise, given that hash price has decreased by 69.4% in the same period. Miner margins are getting relentlessly squeezed as earnings decrease, in both bitcoin and dollar terms.
Since the all-time high in the bitcoin price, every publicly traded mining company has underperformed the asset itself, bar none.
This concludes “Hash Rate Hits New All-Time High: Implications For Public Miner Equities”, published for our paid tier subscribers Thursday 10/6/220. You can access the original article by clicking the button below.
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