MinerMovements #11
A Perfect Pre-Halving Storm For S9s 🌪️
MinerUpdate hosted their first virtual conference this week. MineBlown was a huge success featuring a phenomenal speaker line-up, virtual rooms to network, and even Miner Tinder!
We want to thank our speakers Matthew Black, Marty Bent, Whit Gibbs, Wes Fulford, Ethan Vera, and Leslie Lamb for sharing their insights with attendees. We also want to thank supporting companies including Tales from the Crypt, Amber Group, Luxor Mining, and Atomic Loans.
The event also would not have been possible without attendees taking the time to join us. We had mining enthusiasts joining from across the globe including China, North America, Europe, Canada, and South East Asia!
The dominant theme of the event was the financialization of the mining industry. How derivative products and financial services will change the mining landscape was discussed in depth.
If you missed it, you can check out the recap of MineBlown here. We will also be lining up future virtual conferences on an even bigger scale! In the meantime, share this newsletter with a friend, colleague, or family member as there’s no fun in keeping the best mining insights all to yourself!
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The S9 Storm 🌪️
The Antminer S9 was a phenomenal leap in Bitcoin mining innovation. The rig had roughly a 3x improvement in both hash rate and energy efficiency over its S7 predecessor. At the time of its June 2016 release, the S9 was vastly more powerful than any other mining equipment on the market.
S9 rigs quickly became the dominant force in Bitcoin mining. At its peak around April 2018, it is estimated that 80% of network hash rate was attributable to S9 hardware. But with vastly more powerful and efficient hardware becoming available over the past year, it has long been forecasted that the S9 is at the exit door. The latest research indeed shows that the S9 series share of hash rate has declined to roughly 23%. Furthermore, it is believed that roughly half of all S9 hardware is unused and sitting offline.
The halving was the upcoming event that was destined to be the nail in the S9 coffin. With Bitcoin price hitting roughly $3,500 in March amid record difficulty levels, it seemed a sure thing that the S9 mining rig would become obsolete. But market conditions can change rapidly and the past six weeks have brewed a perfect pre-halving storm for S9s.
Firstly, the appreciation in Bitcoin price has completely changed the profitability prospects for miners with S9s on their balance sheet. The ~180% price increase from the March low to the May 7th high has brought many miners who would have been below breakeven post-halving back into profitable territory.
Secondly, the latest difficulty adjustment was also favourable to miners with only an increase of 0.92% recorded. Two weeks ago, the outlook for miners was still hugely uncertain. Price struggled to increase from trading in mid-$7ks and most market participants maintained a dim outlook. With mining prospects remaining uncertain, miners who had turned their operations offline may have been hesitant to restart. Such hesitancy would certainly be reflected in the difficulty adjustment with the change suggesting that roughly 1% more computing power was deployed on the network since the prior adjustment.
Furthermore, forex market movements have given rise to unique circumstances whereby Bitcoin miners based outside North America are benefitting from domestic currencies devaluing. Miners earn Bitcoin but pay their utility bills and other expenses in fiat. Major domestic currencies have devalued significantly against the USD this year. Expenses become de facto cheaper for businesses generating revenue in a stronger currency (e.g. BTC). Recent data has shown Russia, Kazakhstan, and Malaysia to consistently be in the top five regions with the most Bitcoin has rate worldwide. As illustrated above, the domestic currencies of each of these economies has declined significantly against USD. Put another way, Bitcoin has appreciated 36% year-to-date against USD. But against RUB, Bitcoin has appreciated 59%.
That’s not all. Braiins has recently released firmware for S9 rigs that can boost hash rate capacity to over 17 TH/s while improving efficiency by up to 20%. Let’s also not forget the price of the rigs themselves. S9s have been selling on secondhand marketplaces for as low as $20. At the current price and difficulty levels and $0.05 per kWh electricity rate, estimates show S9 models operating ~35% gross margins. With rainy season in Sichuan starting and electricity deals at less than and below $0.03 per kWh becoming more common, everything seems to be aligned to extend the lifespan of S9s.
But there is one factor which could damper the chances of S9s continuing to be profitable. Dispersion of the latest generation hardware, the S19 series and Whatsminer M30S series, will increase the hash rate output of the network. This will increase difficulty which will push up the cost miners incur. The least powerful and efficient equipment will be pushed closest to breakeven levels. The first batch of S19s is scheduled to be delivered this month. The second batch is currently selling for delivery in August. Several factors have been in favour of S9s continuing to hold a significant share of hash rate post halving. But the chances of sustaining a significant share far beyond the halving are much lower.
Miner Insights;
ASIC Mining Rig Manufacturer Ebang Files for $100 Million US IPO - Top four Bitcoin mining manufacturer Ebang files with the SEC to list on the NASDAQ or NYSE under the ticker symbol “EBON”. This marks Ebangs’ second attempt to execute an IPO after an application to the Hong Kong Stock Exchange in 2018 failed to be carried out.
Quick Miner Movements;
Cambridge Centre for Alternative Finance launches a Bitcoin Mining Map to estimate global distribution of hash rate from Q3 2019 to April 2020.
Several reports surface of issues with Antminer S17 rigs. Blockstream CSO Samson tweeted that the hardware has a 20-30% failure rate.
Best of the Rest;
Hashr8 Podcast - Hashrate Spot & Future Markets with Ethan Vera - Luxor Mining CFO Ethan Vera discusses how Luxor value hash rate internally. Vera also details what future hash rate market places will look like and how hash rate may be the first market where speculators can trade computing power.
Chinese City Known for Bitcoin Mining Seeks Blockchain Firms to Burn Excess Hydropower – Government authorities in Ya’an, a city in China’s Sichuan province, have issued public guidance to urge “blockchain” firms to set up operations to make use of the excess hydropower generated in the region.
Hut8: The Struggle’s of One of Canada’s Largest Bitcoin Miners - CoinDesk research analyst Matt Yamamoto dives into the financial reports of Hut8 and highlights the struggles the company has faced. Yamamoto details the relationship between Bitfury and Hut8 and how Bitfury’s inability to stay at the forefront of Bitcoin ASIC innovation hindered the competitiveness of Hut8.
The Grasshopper and the Antminer - CoinMetrics analyst Karim Helmy uses nonce distribution data to estimate how much of the current Bitcoin hash power is represented by Antminer S9 series rigs. Anomalies in the nonce distribution is assumed to represent the prevalence of S9 rigs. The nonce data is extrapolated to estimate that 23% of the current network hash rate is represented by Antminer S9 rigs. It is also estimated that currently 25 EH/s of Antminer S9 series rigs are unused and sitting offline.
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MinerUpdate.com is the leading crypto-mining publication. Our aim is to bridge the gap between the East to the West in mining while delivering to our readers the latest insights and developments in the industry. In October 2019, MinerUpdate hosted MinerSummit, the first English crypto mining event in China.
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Thanks so much! Awesome work!