For the industry’s bitcoin miners, 2020 is not the year they had hoped for. With the mining reward cut in half and the price still well below $10,000, an increase in the price of the centerpiece would be a welcome change. However, saying this could be seen as a simplification of the Bitcoin mining landscape, which has become more complex in recent years. Today, there may be more than one variable that determines the profitability of mining operations.
A recent BitOoda report has attempted to understand the role of the availability of cheap energy and its impact on the grid and hash. With much of the grid’s mining capacity located in China, the impact of cheap hydropower during monsoons helps many operations remain sustainable. The report looked at the relationship between hashrate growth and the flood season in China and made a number of arguments,
“In our opinion, the flood or hydro season shifts the cost curve downward for six months of the year, resulting in lower sales of Bitcoin to fund operating expenses as miners accumulate capital to fund capacity growth”
In addition, the report also found that capital accumulation that allows miners to upgrade their equipment also correlates with price appreciation and an increase in hashish 4 to 6 months later.
“An increase in capital accumulation would reduce the industry’s demand for external funding to support Hashrate’s future growth.”
Since the halving, the price of Bitcoin has continued to move sideways. While the rally after Black Thursday has been speculated to continue to push the price, such a scenario has not yet manifested itself for the centerpiece. In fact, the report goes on to say that there could be consequences if the price does not register positive momentum.
“The large capital expenditure required to realise the potential of the Hashrate is a limiting factor – in particular, if the price of BTC does not increase at the same rate as the Hashrate, it will at the very least prevent the generation of internal cash flow for the industry, further increasing dependence on external sources of capital”
It is interesting to note that the data from Blockchain.com shows that there has been a drastic decline in miners’ incomes in 2020. According to BitOoda, “price appreciation is built into each miner’s investment budget”, with the report adding that in the case of S19 miners, they would fail to recover their cost of capital at hash rates well below 295EH/s.