Location, Location, Migration

Price-wise. Absolutely nothing is happening. It seems like nobody has a clue as to what is going on in the market with it swinging from positive to negative outlook every few hours. The only thing anyone is certain of is there’s a lot of uncertainty. There’s very little volume across bitcoin derivatives and it’s not really clear whether it is retail or funds. Seems like those that have positions are sticking to them, but the onus is very much on the bulls to prove the outlook rather than the bears who are in the driving seat having watched the market’s largest absolute loss ever of ~$3.45billion. Guess there’s going to be a little wait until some more major action……..btw, we’re still ranging at $30k, which is just fabulous.

Exodus! Freedom of Jah deflationary digital bearer non-confiscatable hard asset

The effect of China outlawing crypto-mining has been very visible on the bitcoin hashrate (and price) as the migration from the country continues. Photos and videos of miners being turned off, packed up, and shipped out have been making the rounds on chat channels and social media as companies seek pastures new. It’s all been quite exciting wondering where they will pop up and it will be great to see the hashrate return in force.

What hasn’t been as exciting, and slightly annoying is the average block time which is taking considerably longer as miners are currently working with far less overall hash power but the difficulty adjustment hasn’t taken place yet. They’re coming like London buses, none for an hour and then 2 or 3 in quick succession, causing bumpy fees and delays.

Miner revenue has taken a large hit, down ~65% since the 60k days (how long ago they feel), yet are still up ~150% YoY. This is partly down to the lack of supply of mining equipment as a global pandemic and shortage of semiconductors has stopped expansion plans for many — however, it does also mean that a lot of equipment has lasted longer than you would expect, especially given the size of the rally. This has given miners the ability to stack a lot of coins in their treasury during the uptick and they won’t be in a rush to sell them at low prices. Those liquidating to facilitate moves look to have done so in June and miner treasuries are back on the rise.

On the flip side, there’s something you can do about it! Following some back of the napkin calculations, at the current hashrate an Antminer S9 miner, which can be had for ~£250–400 second-hand, will net you around 0.03 bitcoin per year (if in good conditions and with market average location and energy costs), giving around £700 in profit per annum, per unit.

Compare this to the newer and beefer S19s (~£5000–7000), which will produce around 0.2 btc per year, or ~£5000 profit after costs per unit. The S9s are giving a far higher return on investment at this level and given the steep decline in revenue and relocation costs, this may have caused some increased sell pressure from miners - which the Spent Output Profit Ratio (SOPR) indicates in incredible capitulating fashion. Basically, it’s never been a better time for smaller miners to get the most profit per unit since the days of sticking 10 USB miners in your university library computers and hoping no one realized until after the winter break. But like those times don’t expect it to last long at all. S19s are still giving great returns at those levels, we’ve been spoiled the last few months!

We can’t imagine this mismatch to continue for long given that waitlists for new machines are at least a year still and once miners in transit find a new home the return of hashrate should be quick as activity is heavily incentivized at current levels. However, just like the price it may be a case of slowly building back up after taking the elevator down, and not all miners will be continuing operations. But the second-hand market is snapping up all availability, miners’ continued to accumulate throughout Q1 at ATH levels, and that miners tend to be the most bullish of bulls all make for a good case that hashrate will return sooner rather than later.

Miners outside of China have been prepping for this moment

With the fervor over miner migration, those that are already set up and operational are reaping benefits in the form of renewed interest in North America-based bitcoin miners and their share price.

Investing in a miner has been quite a good way to gain exposure to bitcoin and other cryptos being mined (normally ethereum) in a stock portfolio sort of way. It’s quite a direct exposure to the overall state of the network and as outlined in the piece above they’re operations can expand and contract with the market.

Hut8 Mining and BitFarms both announced that their shares had been approved for trading on the NASDAQ, meaning easier entry for retail investors wanting a piece of the pie, with BitFarms also available on the Toronto Stock Exchange. Interestingly both these companies are green-energy focused and purport to be long-term holders of their mined coins regardless of the direction of the market. Hut8 is also involved with a US mining council spearheaded by who else but Michael Saylor. BitFarms took the sizable opportunity to add 48,000 new units to their operation in March 2021, for a 2021/22 arrival. Argo is now also looking to add a second listing on the NASDAQ, already on the LSE.

Mining companies are now in quite a heady space wherein they aren’t always required to sell their mined bitcoin to pay for the operational costs. Instead, they could start offering convertible bonds or raise capital via new share issuance or for younger companies do capital raises from those willing to sit on a bitcoin position for several years. The room for maneuverability for miners is getting larger and could suggest the days of miners being forced to sell in nonoptimal market conditions will be over when there’s enough demand from investors who want direct exposure to bitcoin’s hardware layer. It will be interesting to see how these mining companies start converging or differing their offers and services and who they see as their core as their ability to do so grows.

The farmer has to be an optimist or he wouldn’t still be a farmer

A group of UK farmers recently announced they’re using cow manure to mine cryptocurrencies by doing what all crypto-enthusiasts and investors do, look around and see what resources they have and how to convert that into a better store of energy.

The methane produced via anaerobic digestion is green energy and just the latest example of how miners are heavily incentivized to seek out the cheapest source of energy that would otherwise be lost. Is this a saving grace and revenue stream for UK agriculture? Will the government start subsidizing the cost of mining equipment once it becomes clear that crypto-mining can make a huge impact on the push for renewable energy by providing an income when there isn’t demand or storage on hand?

Where to now?

The recent headlines out of China have spawned market-wide fear, uncertainty, and doubt of what impact if any at all regulators crackdowns in the world's second-largest economy could have on Bitcoin and the broader cryptoasset market. While market veterans have remained largely unfazed, many of the newer entrants perceived the headlines to be potentially detrimental to the future of crypto and struggled to stomach the volatility. This division between new and existing market participants has presented unique opportunities for those with enough conviction in the future who are willing to deal with fear, uncertainty, and doubt. Whales (wallets with 1000+ BTC balance) have started accumulating and the North-American ‘farmers’ (miners) are sowing their seeds in preparation.

First time? Looking as far back as 2013 one will find endless headlines out of China that speak to the country’s distaste for crypto. While such announcements caused downwards pressure in the following days, weeks and months, bitcoin has always tended to continue pressing higher in the subsequent months. Bitcoin has gone on the rally, on average 66% approximately 90 days after the last 13 market-moving headlines concerning China. This supports the theory that in reality, bitcoin is very much antifragile (see honeybadger); that is, that bitcoin grows and actually thrives when exposed to disorder, stressors, and volatility. Is this time any different? Only time will tell.




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