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Hashrate: The Latest Victim

GOOD NEWS ALERT:  NASDAQ is reportedly planning to list Bitcoin Futures in Q1 2019. ICE-backed ‘Bakkt’ is also set to launch Bitcoin futures in January. Two of the biggest exchanges offering Bitcoin futures underpins the strong demand that they are receiving from institutional investors. Further proof that the current price slump is just a minor aberration and Bitcoin is poised to reach new highs once institutional investors jump in.

If there was a silver lining for Bitcoin holders this year until the recent downturn, it was the fact that the hash power of Bitcoin had shown a secular uptrend for a majority of the year despite plummeting prices. The upward trajectory in hash power underpinned miners’ bullishness on the long-term prospects of Bitcoin, as the hash power had more than quadrupled since the beginning of this year.  Hash rate is the thing that secures the Bitcoin network and as hash power increases, the Bitcoin network becomes more secure.

There are multiple estimates for the break-even costs of cryptocurrency mining and when Bitcoin was moving sideways between $6k and $7k, estimates were that the marginal cost for a Bitcoin miner would be somewhere around $6k. After the recent price rout started, hash rates however have dropped concurrently with the price for the first time in 2018 ( graph below).  From its high in Sept, Bitcoin hash rate has dropped by more than 24%, implying that miners are dropping off the network in response to worsening miner economics. Unprofitable miners are selling their mining equipment for throwaway prices amidst the slump. This anecdotal evidence sheds some light on miner economics, highlighting that for miners operating on a smaller scale their economics will be in the red if BTC is below the $5.5-6k level. The hardest hit by the hash rate drop would be the mining equipment manufacturers such as Bitmain, which is gearing up for an IPO. For those who manage to wither the margin squeeze, the difficulty drop should bring back the surviving miners to profits again, provided BTC doesn’t lose too much value in the interim.

Meanwhile in Crypto Wonderland….

“Ohio Now Accepts Crypto” Ohio will begin accepting Bitcoin payments for twenty-three kinds of business taxes. The state will become the first in the United States, and one of the first governments in the world, to accept cryptocurrency. The website states that the state is adopting crypto payments because they are secure, transparent, and low cost. The Treasurer’s office is also adding more cryptocurrencies in the future.

“Bulgarian Crypto Thieves Caught” Three crypto thieves in Bulgaria have been apprehended by authorities for reportedly stealing $5 million in crypto. The three hackers reportedly stole the crypto by using new hacking methods and specialized software for their approach. The arrest comes after a 5 month investigation in which they were informed about the first cases of the alleged scam.

“AMD and Nvidia Hit by Crypto Prices” AMD and Nvidia’s oversupply of cryptocurrency-mining chips will persist longer than expected according to a new RBC study. The management of graphic card makers AMD, and Nvidia had warned that it was expecting “essentially no cryptocurrency” business moving forward. That mirrored rival AMD’s warning in July which said it expects the impact from crypto to fall to nearly zero in the third quarter.

“Norway: Say Bye to Cheap Electricity” Norwegian Tax Administration has announced that cryptocurrency mining units will no longer able to enjoy the discounted electricity tax rate. The proposed change will take effect from January 2019. Norway currently offers discounts on the tax rate on electricity to power-intensive industries, those which consumes power of more than 0.5 megawatts are charged 0.48 øre ($0.00056) per kilowatt hour, instead of the regular rate of 16.58 øre.

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Ramani Ramachandran

Ramani Ramachandran (Ram) has close to two decades of experience across consulting, IT, product management, corporate development and investment banking across the US, Europe and Asia. Ram has a B.Tech from the National Institute of Technology, Calicut, a PGDM from the IIM Lucknow and an MBA from MIT Sloan.

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