Casey Wagner

Ben Strack

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Welcome to the On the Margin Newsletter, brought to you by Ben Strack and Casey Wagner. Here’s what you’ll find in today’s edition:



<ul class="wp-block-list">
<li>Breaking down stocks’ wild week that is seeing prices end…right where they began. </li>



<li>A look at MicroStrategy’s stock split, and how much it matters.</li>



<li>What the economic data from this week means for markets. </li>
</ul>



<hr class="wp-block-separator has-alpha-channel-opacity"/>



<h2 class="wp-block-heading">Full-circle moment for stocks&nbsp;</h2>



After all the excitement this week, stocks are poised to end pretty much exactly where they began.&nbsp;



The S&amp;P 500 on Friday morning opened just 32 points below its closing level last week, when the <a href="https://blockworks.co/news/empire-newsletter-suspect-of-market-crash">jobs report-fueled selloff began</a>. The index is now trading 3 points below Aug. 2’s close as of 2 pm ET.&nbsp;



The Nasdaq Composite similarly opened on Friday around 0.8% lower than its Aug. 2 close — but by 2 pm ET was trading almost the same as where it closed last week.&nbsp;



So what happened? First, let’s rewind to what caused the selloff.&nbsp;



Last week’s <a href="https://blockworks.co/news/july-disappointing-jobs-report">distressing July jobs report</a> coincided with a series of disappointing earnings reports from Big Tech companies. Plus, there was a massive drop in Japanese markets as the popular yen carry trade started to unwind.&nbsp;



Couple all that with the Sahm figure flashing red (don’t worry, it may not be <a href="https://blockworks.co/news/on-the-margin-newsletter-recession-signals">as bad as it sounds</a>) and it was, by most accounts, a perfect storm. No wonder stocks have started out August in the red.&nbsp;



Now, things are looking up. At least for now.&nbsp;&nbsp;



For starters, we got some encouraging data this week. More on that below, but the gist is that investors’ concerns about the labor market appear to have eased since Thursday’s initial jobless claims came in lower than expected.&nbsp;



The VIX has been on the decline <a href="https://blockworks.co/news/crypto-stocks-rebound-volatility-not-over">since hitting 55 on Monday</a>, a level not seen since the pandemic-driven crash in March 2020. As of Friday, the VIX is down more than 60% over the past five days, hovering around 21.&nbsp;



There’s a “but” coming, right?&nbsp;



As we discussed Tuesday, volatility does not just dissipate in a matter of days; it tends to cluster. If the VIX hits 35 or higher once during a given year, it almost always does again. The index is also a leading indicator, so expect delays between heightened volatility and stock market reaction.&nbsp;



And markets may have breathed a sigh of relief on Thursday after seeing the jobless figures, but the report wasn’t all good. Continuing claims rose to nearly 1.9 million, marking a new high for 2024 and bringing the figure to a level not seen since November 2021.&nbsp;



Increased continuing claims show that laid off workers are having a hard time finding new jobs, said Sevens Report Research founder Tom Essaye. This shouldn’t come as a surprise, as we’ve been seeing a hiring slowdown and new openings across industries for months.&nbsp;



“Bottom line: The headline on this report was positive and it did spark a rally, but don’t let the market’s reaction fool you,” Essaye said. “This report still implies the labor market is losing momentum, and as such, downside economic risks remain very real.”



All in all, the data is mixed. The market seems happy enough though, and odds of an interest rate cut come September are still 48%, <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html">per</a> CME Group.&nbsp;



I say take the win and unplug until Monday.&nbsp;



— Casey Wagner



<h3 class="wp-block-heading">$36&nbsp;</h3>



The bitcoin hash price level (per petahash per second, or PH/s) hit earlier this week, which represented an all-time low.&nbsp;&nbsp;&nbsp;&nbsp;



This metric takes BTC’s price, network difficulty, block subsidy and transaction fees into account. It <a href="https://data.hashrateindex.com/chart/bitcoin-hashprice-index">measures</a> the potential earnings a BTC miner can expect from a specific quantity of hash rate.



Bitcoin hash price has since rebounded to about $43 PH/s, Hashrate Index data shows. Still, this level makes it a <a href="https://blockworks.co/news/bitcoin-halving-outlook-for-public-miners">challenging environment for bitcoin miners</a>, particularly those with <a href="https://blockworks.co/news/bitcoin-mining-interview-solo-miners">higher power costs</a>.



“Even proprietary mining operations of publicly traded companies are unlikely to generate net profits with the current record-low hash price, before accounting for depreciation and tax,” states a Thursday <a href="https://theminermag.com/news/2024-08-08/bitcoin-mining-loss-hashprice/">report</a> by BlocksBridge Consulting.



<h2 class="wp-block-heading">MSTR shares are cheaper now. So what?</h2>



One share of MicroStrategy is 10 times cheaper than it was a couple days ago. Measuring how this affects the crypto stock’s outlook is slightly more nuanced.



Shares of MicroStrategy — the <a href="https://blockworks.co/news/microstrategy-bitcoin-holdings-worth-nearly-15b">largest corporate holder of bitcoin</a> — surged above $1,000 in early March. MSTR shares kept rising to roughly $2,000 toward the end of the month. The run coincided with <a href="https://blockworks.co/news/bitcoin-all-time-high">bitcoin’s all-time high price</a>, hit on March 14.&nbsp;



At the market open today, investors could buy a MicroStrategy share for about $135.



Put another way, the 10-to-1 stock split (announced last month and put into effect Thursday) lowered MSTR’s share price from that of a new laptop to the price of a New York City salad (inflation joke!).



While stock splits increase the number of outstanding shares in a company, the move doesn’t change that company’s inherent value. In MSTR’s case, that still rests on the value of the BTC MicroStrategy holds, its software business and its “intelligent leverage” approach, noted Benchmark analyst Mark Palmer.



Still, such a split makes the stock more affordable to certain investors and enhances the shares’ liquidity, he added.&nbsp;



MSTR shares rose by about 4% after the stock split, according to Yahoo Finance data. Lance Vitanza, managing director of equity research at TD Cowen, said he does not attribute yesterday’s MSTR share price rise to the split, but rather to bitcoin’s recovery.



To that point, MSTR shares were down 3% Friday, as of 1 pm ET — similar to BTC’s 2% price drop over the past 24 hours.&nbsp;



“It appears to me that MSTR got more of an anticipatory benefit upon the announcement of the split (in July), at which point the premium at which the shares trade to underlying bitcoin value increased notably,” Vitanza told Blockworks.



The share price gain on Thursday was more pronounced than what other companies have seen this year on their first day after a stock split. NVIDIA, Broadcom and Chipotle, for example, saw negligible gains of 1% or less immediately after stock splits.&nbsp;



Though sentiment around these splits may be overblown, MicroStrategy’s decision to execute a 10-for-1 split was “prudent,” Vitanza added.&nbsp;&nbsp;



He said: “In the case of MSTR, which is largely traded by retail accounts, I do think the lower share price post-split could serve to broaden the stock’s appeal.”



Such investors looking for BTC exposure could also just buy a spot bitcoin ETF — though <a href="https://blockworks.co/news/microstrategy-q3-earnings-results">Michael Saylor</a> and analysts have pointed out the <a href="https://blockworks.co/news/microstrategy-stock-vs-bitcoin-etf">differences between those and MSTR shares</a>.



— Ben Strack&nbsp;



<h2 class="wp-block-heading">Did You Notice</h2>



We made it to Friday! While it was an eventful week for markets, things were a bit quieter on the economic data front. Here’s what happened:&nbsp;



<ul class="wp-block-list">
<li>Initial jobless claims on Thursday came in slightly below expectations (seasonally adjusted 233,000, versus the anticipated 240,000), which helped to calm markets. The latest figure — reflecting claims filed in the week ended Aug. 3 — comes after jobless claims hit their highest levels in almost a year at the end of July. The report did show that continuing claims are on the rise, signaling that unemployed workers are having a hard time finding new roles. All in all, the report was mixed, but you wouldn’t know that by only looking at the market. </li>



<li>US services sector activity is also on the rebound, according to data released Monday by the Institute for Supply Management. The ISM’s non-manufacturing purchasing managers index (measuring factors like employment, orders and supply) increased from 48.8 in June to 51.4 in July. The figure was another positive indication that a recession may not be imminent after all. </li>
</ul>



— Casey Wagner



<h2 class="wp-block-heading">Bulletin Board&nbsp;</h2>



<ul class="wp-block-list">
<li>US spot bitcoin ETF inflows <a href="https://farside.co.uk/?page_id=1321">totaled</a> $195 million on Thursday, reducing the category’s net outflow total this week (excluding Friday) to $77 million. Meanwhile, the country’s spot ETH ETFs managed to reel in positive net flows of $121 million over the four-day span. </li>



<li>Tether is looking to double its headcount by the middle of next year, Bloomberg News <a href="https://www.bloomberg.com/news/articles/2024-08-09/tether-to-double-staff-by-mid-2025-in-compliance-finance-push?srnd=undefined">reported</a>. The report, which cites CEO Paolo Ardoino, comes after the stablecoin issuer posted a <a href="https://blockworks.co/news/tether-q2-2024-earnings-report#">net profit of $5.2 billion</a> during the first half of 2024.</li>



<li>You read a bit about MicroStrategy above. For more, check out Blockworks editor David Canellis’ <a href="https://blockworks.co/news/microstrategy-mstr-stock-btc-performance">piece</a> on how the company’s stock has managed to beat bitcoin.</li>
</ul>



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</ul>

Hash rate

Stocks mount comeback to close out volatile week

Bitcoin miner Marathon Digital is ahead of schedule on its growth plans after a halving event that is expected to highlight segment winners and losers.&nbsp;



The Florida-based company’s energized hash rate stood at 27.8 exahash per second (EH/s) on March 31.&nbsp;



Executives had said in February that Marathon intended to grow its hash rate by about 35% in 2024 and reach 50 EH/s by the end of 2025.



Read more: <a href="https://blockworks.co/news/marathon-digital-2023-q4-earnings">Marathon Digital ready to deploy ‘dry powder’ in push to double hash rate</a>



But that 50 EH/s target could be attainable by the time 2024 wraps up, Marathon CEO Fred Thiel said in a Thursday statement.



The amended growth projection timeline is a result of its capacity boost via acquisitions, the chief executive noted. The company also has access to hash rate through current machine orders and options.&nbsp;



“With our current liquidity position, this growth target is also fully funded and there is no need for us to raise additional capital to achieve our objective,” Thiel added in a statement.&nbsp;



Marathon had $324 million in cash and 17,381 BTC on its balance sheet at the end of March. The company’s BTC stack was worth about $1.1 billion based on Friday morning’s bitcoin price.



The miner <a href="https://blockworks.co/news/bitcoin-mining-giant-gets-bigger">finalized the purchase of two mining facilities in Texas and Nebraska</a> earlier this year before then buying an additional Texas site owned by Applied Digital for $87 million in cash.&nbsp;



Read more: <a href="https://blockworks.co/news/marathon-digital-outlook-bitcoin-halving">Miner Marathon poised to acquire, expand after Bitcoin halving, exec says</a>



Thiel said that as the company grows to 50 EH/s, it expects to improve its fleet efficiency to 21 joules per terahash (J/PH).&nbsp;



Gaining scale and improving efficiency have been <a href="https://blockworks.co/news/mining-firms-prepare-for-bitcoin-halving">top of mind for miners around the bitcoin halving</a>, which occurred last week. The event resulted in a reduction of per-block mining rewards from 6.25 BTC to 3.125 BTC.



Industry watchers have said they expect less efficient miners with higher power costs and less access to capital to struggle in the weeks and months following the halving, with <a href="https://blockworks.co/news/bitcoin-halving-crypto-miner-consolidation">segment consolidation likely</a>.



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bitcoin halving

A bitcoin mining giant is ahead of schedule on its post-halving expansion

As the Bitcoin halving nears, miners express ongoing concerns about the potential need to shut down less efficient mining rigs due to reduced block rewards.



When the halving happens less than a week from now, the Bitcoin network’s per-block mining rewards will halve from 6.25 BTC to 3.125 BTC.



This impending reduction has led to worries about increased cost inefficiencies that may render smaller contributors unprofitable. These apprehensions are not new, having surfaced prior to past halving events as well.



In anticipation, a number of mining companies have sought to strengthen their balance sheets, deploy more efficient machines, and diversify their revenue streams to better withstand the upcoming changes.



However, some observers believe these fears are generally overblown. They point out that larger mining outfits have historically managed to adapt and thrive amidst the cyclical market fluctuations typically associated with block halvings.



They predict a similar <a href="https://blockworks.co/news/coinbase-primer-investors-bitcoin-halving">outcome for the upcoming cycle</a>, where initial disruptions may give way to a phase of price discovery, driven by the increased scarcity of Bitcoin.



This could potentially lead to higher Bitcoin prices, which would help to offset the reduced block rewards. That in turn may alleviate some of the financial pressures on miners and possibly restore profitability to their operations.



Read more: <a href="https://blockworks.co/news/miners-stockpiling-btc-before-halving">Miners keep adding to BTC stockpiles in homestretch before halving</a>



Industry giants like Marathon Digital and Riot Platforms seem to have a clear edge over most of their peers in at least one category; their balance sheets consist of more than $1 billion each in combined cash and BTC.



Chase White, a senior analyst at Compass Point Research &amp; Trading, previously said private miners without easy access to public markets capital are more likely to have to shut down operations in the aftermath of the per-block <a href="https://blockworks.co/tag/mining">mining</a> rewards cut.



Despite expecting “pain for everyone,” White added that miners carrying low or no debt, who pay the lowest amounts in terms of energy costs, and who are equipped with the most efficient mining fleets are likely to be fine.



Not all mining companies fit these criteria.&nbsp;



Read more: <a href="https://blockworks.co/news/bitcoin-halving-impact-on-at-home-miners">‘BTC will have to hit $79K’: At-home miners brace for the Bitcoin halving</a>



And so, the question remains: Which firms will come out on the other side of the <a href="https://blockworks.co/tag/bitcoin-halving">halving</a> intact, and stronger?



<h2 class="wp-block-heading">Past financial troubles for miners</h2>



Several sources had trouble coming up with any major miners hurt badly by the last halving event four years ago.



According to Kayla Joyce, an associate at the law firm Holland &amp; Knight, the 2024 halving event differs from its predecessors in 2016 and 2020. She predicts it may lead to a wave of consolidation and defaults across the now matured space.



She did not disclose which firms she believes are most at risk, however.



Read more: <a href="https://blockworks.co/news/bitcoin-halving-crypto-miner-consolidation">Bitcoin miner consolidation appears imminent as halving looms</a>



“The 2020 halving seemed to have less of an impact because the bitcoin mining industry was a smaller space prior to the 2021 crypto bull market,” Joyce told Blockworks. “Investors only started pouring money into the industry in 2021.”



Hardship across the mining sector was not primarily due to the 2020 halving, but rather resulted from the 2022 crypto winter. This downturn followed a period where mining firms accumulated substantial debt to fund aggressive growth initiatives.



Crypto mining data center operator Compute North <a href="https://blockworks.co/news/compute-norths-business-goes-south">filed for bankruptcy</a> in September 2022 after raising $385 million in debt financing that February. The company said in bankruptcy filings at the time that it owed as much as $500 million to at least 200 creditors.



<a href="https://blockworks.co/news/bitcoin-miner-core-scientific-to-file-bankruptcy-stock-tanks-30">Core Scientific then filed for bankruptcy</a> in December 2022. It noted at the time that while its cash flow was positive, it was insufficient to repay an equipment financing loan.



<a href="https://blockworks.co/news/core-scientific-emerges-from-bankruptcy">The Texas-based company emerged from bankruptcy</a> in January — reducing its net debt to $571 million by converting equipment lender and convertible note holder debt to equity.&nbsp;



Core Scientific CEO told Blockworks last month that going forward, the company intends to be more “pragmatic” on its infrastructure growth strategy and more “opportunistic” on the machine purchase side.



Read more: <a href="https://blockworks.co/news/adam-sullivan-core-scientific-bitcoin-halving">Core Scientific CEO: Machine buys, deleveraging key around Bitcoin halving</a>



Though Argo Blockchain did not go bankrupt amid the 2022 bear market, the London-based firm said late that year <a href="https://blockworks.co/news/argo-bankruptcy-still-on-the-table">it was looking to avoid such a fate</a> despite holding “insufficient cash” to sustain operations for much longer.



Argo mined 103 bitcoin last month and held digital assets worth the equivalent of 26 BTC ($1.82 million), as of March 31. Last month, the company also closed on the sale of its facility in Mirabel, Quebec for $6.1 million



It used the proceeds of the sale to repay the Mirabel facility&#8217;s remaining mortgage of $1.4 million and also paid back a portion of its outstanding debt to Galaxy Digital. Argo still owes Galaxy $12.8 million, down from its original $35 million debt balance to the company.&nbsp; &nbsp;



Overall, the company reduced its debt by $12.4 million during the first quarter, Argo Blockchain CEO Thomas Chippas said in a statement.



He added: “As we approach the halving, we continue to focus on streamlining our operations and running as efficiently as possible.”



<h2 class="wp-block-heading">A look at hash cost, miners’ fate this time around</h2>



Looking at the hash price and hash cost of public mining companies, it is clear that some are better positioned than others as they head into the halving.



Hash price takes bitcoin price, network difficulty, block subsidy and transaction fees into account. It <a href="https://data.hashrateindex.com/chart/bitcoin-hashprice-index">measures</a> the potential earnings a miner can expect from a specific quantity of hash rate. This is positively correlated with changes in BTC price and negatively associated with shifts in bitcoin mining difficulty.



Hash cost, though similar to hash price, offers a different perspective by measuring the cost to the miner.



Reducing hash cost — via improving efficiency by deploying newer machines or securing lower energy rates — has been a key focus for the segment’s firms as the halving looms.&nbsp;



The hash price for bitcoin stood at roughly $106 per petahash per second (PH/s) on Monday, according to Hashrate Index <a href="https://data.hashrateindex.com/chart/bitcoin-hashprice-index">data</a>. This figure takes into account intraday variations in price and transaction fees.



Wolfie Zhao, head of research at TheMinerMag, notes that the hash price will be cut in half after the halving, resulting in earnings of just over $50 per petahash per second (PH/s).



“In that scenario, most of the mining companies would still be mining with a gross profit, albeit much less than before,” he told Blockworks.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1898" height="1056" src="https://blockworks-co.imgix.net/wp-content/uploads/2024/04/TheMinerMag-Chart.png?w=1024&amp;h=1024" alt="" class="wp-image-84117" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2024/04/TheMinerMag-Chart.png?w=1898 1898w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/TheMinerMag-Chart.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/TheMinerMag-Chart.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/TheMinerMag-Chart.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/TheMinerMag-Chart.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/TheMinerMag-Chart.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/TheMinerMag-Chart.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/TheMinerMag-Chart.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/TheMinerMag-Chart.png?w=80 80w" sizes="auto, (max-width: 1898px) 100vw, 1898px" /><figcaption class="wp-element-caption">Source: TheMinerMag</figcaption></figure>



Some of the publicly traded miners with a higher hash cost don’t have much debt on their balance sheet, Zhao noted. Companies with elevated debt-to-equity ratios — like Greenidge, Terawulf and Stronghold Digital — are on the lower end of the all-in hash cost scale, he added.



“So it looks like most of the public miners will survive the halving after having survived the highly levered bear market of 2022,” Zhao said.



<h2 class="wp-block-heading">Companies remain confident despite challenges&nbsp;</h2>



Bit Digital and Bitfarms had higher total hash costs than competitors during the fourth quarter, according to TheMinerMag data — amounting to about 74.2 PH/s and 70.3 PH/s, respectively.&nbsp;



Bit Digital CEO Sam Tabar told Blockworks in an email that the company plans to double the size of its fleet by the end of the year with more efficient miners.



The company may consider acquiring some of its hosting infrastructure to lower production costs. That decision “depends on the opportunity set and corresponding returns profile,” he added.&nbsp;



Beyond that, the company launched a business line in October that is focused on supporting <a href="https://blockworks.co/tag/artificial-intelligence">AI</a> workstreams.



“The margins are substantially better than our mining margins, and helps absorb all of our fixed overhead costs, making us more resilient to hash price volatility,” Tabar said.&nbsp;&nbsp;



Ben Gagnon, chief mining officer at Bitfarms, said that the company&#8217;s low-cost power contracts and energy efficiency strategies will ensure profitability even after the halving.



The Canadian miner agreed to buy nearly 36,000 Bitmain machines in November as part of what it called a “transformative fleet upgrade.” That process will help the company more than triple its hash rate and improve its energy efficiency by about 40%.&nbsp;



“With this plan we are strongly positioned to thrive and take advantage of what we believe will be the most bullish post-halving market the industry has ever seen,” Gagnon told Blockworks.



Joe Flynn, an analyst at Compass Point Research and Trading, wrote in an April 9 research note that Stronghold Digital Mining goes into the Bitcoin halving “in a more difficult position relative to other miners.” This is due in part to its debt and limited access to capital markets.



Stronghold’s infrastructure and access to power is valuable, however, Flynn noted, as companies will need such resources to plug in the hoards of mining machines they have already ordered. He added that selling some of that infrastructure could boost Stronghold’s stock, which was down about 48% year to date, as of Friday morning.&nbsp;&nbsp;



“We ultimately think there&#8217;s value in its assets that could be taken out through [mergers and acquisitions], as there is ability to take out [general and administrative expense] and lower Stronghold’s high overhead as a current small public company,” Flynn wrote.



Stronghold CEO Greg Beard told Blockworks that if Stronghold is deemed an attractive M&amp;A target by an industry peer, such a deal would be “something to consider.”&nbsp;



“Generally speaking, companies that are misunderstood by the public market that have actual attributes and value that can be valued by other public companies…tend to be realized in that way.”



Despite its debt, Stronghold’s vertically integrated structure gives it levers to pull around the halving, Beard said.&nbsp;



For example, last month the company shut down operations at one of its Pennsylvania plants to take advantage of lower electricity prices by importing power instead. It intends to keep that in effect “until it becomes economically compelling to run it relative to purchasing electricity,” the company said in a news release.



“I think the challenge for a lot of miners is that if their power contracts are structured in a difficult way, they’re forced to buy power at a negative margin,” Beard said. “We don’t have that issue.”



While Stronghold is a potential target to be acquired post-halving, Applied Digital has already been on the sell-side of pre-halving deals — agreeing to sell its facility in Garden City Texas last month to Marathon for $97.3 million.&nbsp;&nbsp;



Read more: <a href="http://v">Miner Marathon poised to acquire, expand after Bitcoin halving, exec says</a>



Applied Digital CEO Wes Cummins said in a statement that the company will focus on building out its HPC data centers.



“This strategic transaction represents a purposeful pivot, equipping the company to allocate financial and operational resources toward strategic sites in North Dakota, as well as bolstering our balance sheet strength,” Cummins said.&nbsp;



The company declined to comment further about its post-halving strategy.



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Financial trouble for bitcoin miners: A look back, and ahead as the halving looms 

Galaxy Digital analysts expect that up to 20% of network hash rate from eight mining machine models could go offline at the time of the next bitcoin halving.



The upcoming halving — &nbsp;when per-block rewards for mining bitcoin are cut from 6.25 bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) to 3.125 BTC — &nbsp;is <a href="https://blockworks.co/news/bitcoin-halving-expected-on-4-20">slated for April</a>. Miners have looked to boost efficiency and reduce costs ahead of the event, as the decline in rewards is expected to put financial stress on the sector.



Hash rate — a metric measuring the computational power of bitcoin’s proof-of-work network — &nbsp;stood at roughly 515 exahashes per second (EH/s) at the end of 2023.



But between 15% and 20% of the hash rate coming from eight types of application-specific integrated circuit (ASIC) models could go offline when the halving occurs, Galaxy analysts said in a Wednesday <a href="https://www.galaxy.com/insights/research/bitcoin-big-halving-year/">report</a>. The ASIC models analyzed include M20S, M32, S17, A1066, A1246, and S9, as well as the more efficient S19s or S19j Pros.&nbsp;



Estimated breakeven revenue in dollars per megawatt hour considered the soon-to-be 3.125 block subsidy, transaction fees making up 15% of rewards and a bitcoin price of $45,000. The BTC price was hovering around $52,000 on Thursday morning.



Read more: <a href="https://blockworks.co/news/tracking-bitcoin-price-to-halving">Bitcoin price tracking ahead of the past 2 halvings — now 3 months to go</a>&nbsp;



<a href="https://blockworks.co/tag/galaxy-digital">Galaxy</a> then took into account projected future power prices and implied power costs from public miners.



The estimate of between 15% and 20% of hash rate going offline comes “given how sensitive the breakevens are for the various ASIC models to bitcoin price and transaction fees as a percent of rewards,” Galaxy analysts said in the report.



“It is likely that miners operating these older and more inefficient machines are running custom firmware to improve the efficiency of the ASICs and thus improve their breakeven threshold,” the analysts wrote. “Furthermore, it is probable that instead of certain ASIC models fully exiting the network they will just change hands to miners with cheaper power costs.”



Chase White, a senior analyst at Compass Point Research &amp; Trading, told Blockworks he expects a slightly lower decline.&nbsp;



Compass Point estimates hash rate to average 565 EH/s in April given a projected $55,000 average bitcoin price that month. With that average bitcoin price expected to rise to $57,500 in May after the halving, the firm then expects hash rate to fall to an average of 500 EH/s in May — a roughly 12% decline.



The market rebound in the second half of 2023 and the upcoming <a href="https://blockworks.co/tag/bitcoin-halving">halving</a> seemed to spur a surge of mining firm spending. Such companies made $1.2 billion in commitments for mining machines in the first 11 months of last year, BlocksBridge Consulting data.



Riot Platforms, for example, <a href="https://blockworks.co/news/riot-plots-hash-rate-growth">committed to buy 66,560 MicroBT machines</a> for $290.5 million in December. It also secured an option to purchase up to 265,000 more MicroBT miners.



Fellow bitcoin miner Bitfarms around that time revealed it would add 36,000 Bitmain T21 miners as part of a fleet upgrade plan expected to increase efficiencies, lower unit production costs and grow hash rate.



Read more: <a href="https://blockworks.co/news/crypto-miners-buying-machines?utm_source=CryptoNews&amp;utm_medium=app">Crypto miners keep busy ahead of halving with accelerated machine buys</a>White said private miners without easy access to capital via the public markets are more likely to have to shutdown operations around the time of the halving.



Home retail miners, smaller private operations and miners in areas with higher power costs are particularly at risk, he told Blockworks.



“We think miners who have low or no debt, bottom quartile power costs and efficient mining fleets will be fine,” White added. “Though we certainly expect there to be pain for everyone, especially early on, as miners on the margin of profitability try to wait each other out before shutting down.”



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20% of bitcoin network hash rate could go offline after halving: Galaxy

James Cirrone

Privacy coin Zcash is facing a hash rate consolidation crisis.&nbsp;



ViaBTC, primarily known as a popular bitcoin mining pool, now controls over 51% of the hashing power on Zcash, according to <a href="https://miningpoolstats.stream/zcash">MiningPoolStats</a>.



The hashrate for Zcash, a proof-of-work network, is measured in giga solutions per second (Gsol/s) and ViaBTC is hashing at 4.53Gsol/s.&nbsp;



F2pool is the next contender, but doesn’t really come close to ViaBTC. Miners on f2pool have captured 1.62 Gsol/s, representing just over 18% of the hash rate. 



Coinbase’s blockchain security team pointed out this consolidation of mining power on Sept. 15, and warned of possible risks to users transacting on Zcash.



“If a single miner or mining pool gains over 51% of the network&#8217;s hash power, it can introduce serious security vulnerabilities,” Coinbase wrote in a <a href="https://www.coinbase.com/blog/security-psa-observed-risks-in-zcash-mining-pool-distribution">blog</a>. “An entity could manipulate the blockchain in various ways — such as executing doublespend attacks or censoring transactions, potentially leading to a loss of user and exchange funds.”



Alurosu wrote a post on X, which was later reposted by Electric Coin Company (ECC) founder and chief executive Zooko Wilcox, appealing to anyone who knows Zcash miners who can possibly convince them to switch pools so as not to risk the integrity of the blockchain.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Where do <a href="https://twitter.com/hashtag/Zcash?src=hash&amp;ref_src=twsrc%5Etfw">#Zcash</a> miners chat? How can we convince them to switch pools? <a href="https://t.co/3rHD7IVhuX">pic.twitter.com/3rHD7IVhuX</a>&mdash; alurosu (@alurosu) <a href="https://twitter.com/alurosu/status/1704101829267665059?ref_src=twsrc%5Etfw">September 19, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



ECC, the team behind Zcash, addressed the situation on X, formerly Twitter, on Tuesday evening.&nbsp;



In the thread, ECC explained that it has had conversations with Coinbase about “the nuances of the Zcash network.”&nbsp;



One of those nuances, ECC wrote, is that the Zcash network has a lack of finality.&nbsp;



Finality, when talking about blockchains, simply refers to the point of no return when a transaction is immutably recorded on the distributed ledger.&nbsp;



ECC also linked to a mid-July blog post that discussed a trailing finality layer, which if implemented, would make Zcash “a hybrid” of proof-of-work and proof-of-stake.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">ECC is aware of this issue, and we’ve had conversations with <a href="https://twitter.com/coinbase?ref_src=twsrc%5Etfw">@coinbase</a>, <a href="https://twitter.com/ViaBTC?ref_src=twsrc%5Etfw">@ViaBTC</a>, Zcash&#39;s security lead, and <a href="https://twitter.com/ZcashCommGrants?ref_src=twsrc%5Etfw">@ZcashCommGrants</a>. IMPORTANT: <a href="https://twitter.com/hashtag/Zcash?src=hash&amp;ref_src=twsrc%5Etfw">#Zcash</a> is a decentralized, open-source network with no “lead developer,” no “issuer,” and no org that controls it. 🧵 <a href="https://t.co/X2a16x4xDQ">https://t.co/X2a16x4xDQ</a>&mdash; Electric Coin Co. (@ElectricCoinCo) <a href="https://twitter.com/ElectricCoinCo/status/1704240109267153237?ref_src=twsrc%5Etfw">September 19, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Still, this supposed solution still needs to be agreed upon, so in the meantime Coinbase announced a few precautions it has taken with Zcash.&nbsp;



It has increased the confirmation requirement to 110 blocks, which will in turn increase the deposit time from about 40 minutes to around two and a half hours.



And for those wanting to buy Zcash on Coinbase, the asset is now in a limit-only state to reduce volatility.&nbsp;



Blockworks reached out to ECC and ViaBTC for commentary on the still unfolding situation with Zcash but didn’t receive immediate responses.&nbsp;



However, Wilcox did briefly address journalists and reporters reaching out to ECC, saying that “ECC is the wrong organization to talk to. Zcash is *actually* a decentralized open protocol.”



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">A few journalists and users have reached out to us at <a href="https://twitter.com/ElectricCoinCo?ref_src=twsrc%5Etfw">@ElectricCoinCo</a> about this issue with ViaBTC having more than 50% of the Zcash mining hashpower and Coinbase increasing its required blockchain confirmations. ⤵️&mdash; zooko❤ⓩ🛡🦓🦓🦓 (@zooko) <a href="https://twitter.com/zooko/status/1704558911938863191?ref_src=twsrc%5Etfw">September 20, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



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Bitcoin mining

Mining pool ViaBTC controls over 51% of Zcash hash rate

As the bitcoin halving nears, the hash price for bitcoin — the amount of revenue a miner should anticipate per petahash per second of hashing power — has plummeted from a yearly high in early May.&nbsp;



Miners were netting around $127 a day per petahash per second (PH/s) on May 8. As of Monday, Aug. 28, a miner can only expect $59 a day with each PH/s they have, according to data aggregated by <a href="https://data.hashrateindex.com/chart/bitcoin-hashprice-index">Hashrate Index</a>. 



However, the year 2023 is a small portion of history for one to focus on exclusively. For context, people mining during the bull run of 2021 could at times rake in upwards of $400 a day per PH/s. 



Before the halving in 2020, which cut the block reward from 12.5 BTC to today’s 6.25 BTC, there was <a href="https://www.reuters.com/article/markets-bitcoin-mining/bitcoin-miners-face-fight-for-survival-as-new-supply-halves-idINKCN0ZP060">chatter</a> from many miners about fears over profitability going forward. The <a href="https://www.coindesk.com/markets/2016/06/04/will-bitcoins-block-rewards-halving-bring-crisis-or-consistency/">same fears</a> were present during the 2016 halving.



Two days prior to the halving on May 11, 2020, the hash price was around $160 a day per PH/s. That figure was nearly slashed in half on the day of the halving to just over $87.



Data visualization of hash price since around 2018:



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="2020" height="1296" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=1024&amp;h=1024" alt="" class="wp-image-66383" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=2020 2020w, https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=401 401w, https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=407 407w, https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=341 341w, https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=80 80w" sizes="auto, (max-width: 2020px) 100vw, 2020px" /></figure>



There are several factors behind this year’s dramatic decline, though this is somewhat of a cyclical development since there have been frequent crashes in the hash price for years.



Firstly, bitcoin difficulty — an indicator showing the probability of finding a valid hash that’s below the target — has seen a significant uptick since May and an even more dramatic increase since the beginning of 2023. 



Bitcoin difficulty has jumped from around 48 trillion in May to 55.62 trillion as of Aug. 28, according to <a href="https://www.coinwarz.com/mining/bitcoin/difficulty-chart">Coinwarz data</a>.



Increased difficulty <a href="https://blockworks.co/news/crypto-miner-consolidation-imminent-as-some-industry-players-struggle">has a negative influence on the profitability of those mining bitcoin</a>, Marathon Digital CEO Fred Thiel told Blockworks in November 2022.&nbsp;



Read more: <a href="https://blockworks.co/news/lucky-solo-miner">Solo miner bags entire block reward with just 1PH of power</a>



Outside events could have an influence on the hash price for bitcoin as well.&nbsp;



When Thiel spoke to Blockworks on Nov. 1 — when the hash price was around $70 a day per PH/s — crypto was about to experience yet another downturn with the FTX collapse. One of the first red alerts came roughly eight days later when <a href="https://blockworks.co/news/1-binance-ftx-deal-is-off-unless-ftx-us-is-part-of-the-package-source">Binance backed out of the deal to acquire the crypto exchange’s non-U.S. business</a>.&nbsp;



And on Nov. 21, just days after <a href="https://blockworks.co/news/ftx-bahamas-unit-filed-bankruptcy">FTX’s Bahamas arm declared bankruptcy</a>, the hash price for bitcoin sagged to an all-time low of $55.46 a day per PH/s.&nbsp;



Another key factor in bitcoin&#8217;s hash price is, of course, the price of Bitcoin. When the price dips, even if miners extract the same quantity of coins, the value derived is less. This erosion of value can be challenging for miners, especially for newcomers and those who aren’t operating thousands of top-of-the-line mining rigs.



For instance, in early May, Bitcoin oscillated between roughly $27,500 to just over $29,000. On Aug. 18, <a href="https://blockworks.co/news/bitcoin-crypto-sell-off-market-jitters">there was a harsh selloff of bitcoin and other crypto assets</a>, dragging the price of the world’s largest digital asset down to lows in the $25,000 range.



This drastic reduction mirrored the slide in hash price days after.



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Bitcoin hash price drops to near all time low

Bitcoin is feeling the dog days of summer like the rest of us. In the last thirty days, the world’s largest digital asset has receded 5.5%, per CoinGecko <a href="https://www.coingecko.com/en/coins/bitcoin">data</a>.



But publicly bitcoin miners are pushing through, with two of them seeing modest hashing power gains in July and another two staying flat.



<a href="https://blockworks.co/tag/marathon-digital">Marathon Digital</a>’s operational hash rate ticked up 6.2% from June’s 17.7 exahashes per second (EH/s) to July’s 18.8 EH/s.&nbsp;



The company also mined 1,176 bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>), a 20% jump from June and an over 15-fold increase from the same time last year.&nbsp;



CEO Fred Thiel attributed the gains to the completion of the company’s facility in Ellendale, North Dakota, which he said now has six fully operational buildings.&nbsp;



“Ellendale adds a total of 7.6 exahashes to our energized hash rate. The facility in Garden City, Texas is expected to come online next. Tie in work has been completed at this site, and we believe energization is likely imminent,” Thiel said in a <a href="https://www.globenewswire.com/en/news-release/2023/08/03/2717834/0/en/Marathon-Digital-Holdings-Announces-Bitcoin-Production-and-Mining-Operation-Updates-for-July-2023.html">statement</a>.&nbsp;



CleanSpark saw the largest gain in operational hash rate among its peers so far, upping its efficiency by over 13% in a one-month period, according to a <a href="https://www.cleanspark.com/investor-relations/news-releases#collapsePost259">press release</a>.



<a href="https://www.cleanspark.com/investor-relations/news-releases#collapsePost256">In June</a>, the company had a deployed fleet of over 68,000 miners boasting processing speeds of 6.7 EH/s. By July, the number of miners jumped to nearly 88,000 with average speeds of 7.6 EH/s.



<a href="https://blockworks.co/tag/riot-blockchain">Riot Platforms</a> and Bitfarms’ hashing power remained flat month over month, 10.7 EH/s and 5.3 EH/s, respectively.



Riot mined 11% fewer bitcoin — 410 BTC — compared to June, though it&#8217;s important to note that over 17,000 miners remain offline in its Texas location after a severe winter storm tore through the area in December 2022.



Riot sold 400 bitcoin in July, same as June, but pocketed larger proceeds of $12.1 million due to a net price of $30,293 per bitcoin sold, according to its monthly <a href="https://www.riotplatforms.com/news-media/press-releases/detail/157/riot-announces-july-2023-production-and-operations-updates">report</a>.



<a href="https://blockworks.co/tag/bitfarms">Bitfarms</a> also produced slightly fewer bitcoin, mining 378 BTC in July and 385 BTC in June. However, last month’s haul is over 24% down from July 2022.&nbsp;



Still, Bitfarms has outpaced the first seven months of 2022 in terms of total bitcoin mined, per its July <a href="https://www.globenewswire.com/news-release/2023/08/01/2715649/0/en/Bitfarms-Mines-378-BTC-in-July.html">report</a>.



Bitfarms also increased its hydropower capabilities from 178 megawatts (MW) to 183 megawatts, which in part stems from <a href="https://blockworks.co/news/bitfarms-doubles-down-on-paraguay">its freshly-signed power agreements in Paraguay</a> to power its mining facilities.&nbsp;



In the stock market, Marathon is outperforming its peers, up 2.18% on Thursday at the time of publication. Riot returned to the green in the afternoon, while CleanSpark and Bitfarms were in the red.



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bitfarms

Handful of public bitcoin miners log modest hashing power gains for July

John Gilbert

<div id="highlights-block_62bdb823aabc2" class="highlights">
 <ul>
 <li>Public miners sold more than 100% of their production in May, with many citing debt servicing and increased expenses</li>
 <li>Bitcoin miners are generally considered to be the most committed hodlers because their business model relies on bitcoin remaining an appreciating asset</li>
 </ul>
 
</div>



Bitcoin&#8217;s bear market has put intense stress on mining profitability. Miners like <a href="https://cms.blockworks.co/compass-mining-searches-for-direction-after-top-execs-resign/">Compass</a> are being accused of failing to pay electricity bills. And On June 21, when bitcoin was trading close to $20,000, <a href="https://cms.blockworks.co/crypto-miner-bitfarms-sells-half-its-bitcoin-to-reduce-debt-boost-liquidity/" target="_blank" rel="noreferrer noopener">major mining company Bitfarm</a> sold $82 million worth of bitcoin to bolster its balance sheet. And it wasn&#8217;t alone. Public miners sold more than <a href="https://twitter.com/JMellerud/status/1539242413830680576?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1539242413830680576%7Ctwgr%5E%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fcms.blockworks.co%2Fcrypto-miner-bitfarms-sells-half-its-bitcoin-to-reduce-debt-boost-liquidity%2F" target="_blank" rel="noreferrer noopener">100% of their production</a> in May, and many cited debt servicing and increased expenses as the reason why.



Even as bitcoin&#8217;s price has slumped from its all-time high of $69,000 in November 2021, the difficulty of mining the cryptocurrency has continued increasing. That’s because miners haven’t stopped or slowed down production — when the network increases total computing power, the protocol makes mining more difficult and thereby expensive.



At this unprofitability peak, some of bitcoin&#8217;s most bullish hodlers are selling bitcoin at a low to fund their mining efforts.&nbsp;



The big question is, why? Is bitcoin mining still a profitable venture, and what is the end game?



We sat down with Blockworks Editor David Canellis to get a better understanding.



<div style="padding:56.25% 0 0 0;position:relative;"><iframe src="https://player.vimeo.com/video/725788840?h=822cc432f3&amp;title=0&amp;byline=0" style="position:absolute;top:0;left:0;width:100%;height:100%;" frameborder="0" allow="autoplay; fullscreen; picture-in-picture" allowfullscreen=""></iframe></div><script src="https://player.vimeo.com/api/player.js"></script>



<h3 class="wp-block-heading">How to measure bitcoin mining profitability&nbsp;</h3>



Bitcoin (BTC) is only profitable when mining costs are less than the value of BTC rewards and transaction fees. It sounds simple, but the mechanics of determining costs and the economics at play are less straightforward.&nbsp;



Because cost factors vary, it is better to evaluate miner behavior to analyze overall profitability. The fact that many miners are selling BTC at a low is a good indicator that costs are too high.



Bitcoin miners are generally considered to be the most committed hodlers because their business model relies on BTC remaining an appreciating asset. So when miners sell, it is primarily to cover costs. In an ideal scenario, they sell during bull cycles and accumulate in a bear.&nbsp;



For example, miners took major profits when bitcoin was on its bull run during the winter and spring of 2021. The miner net position briefly dropped to an extreme low of -24,000 BTC per month — indicating that more BTC exited miners&#8217; balance sheets than entered. When bitcoin price is in decline, miner net position is typically positive. This signals that miners don’t need to take BTC profits to cover expenses.&nbsp;&nbsp;&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh4.googleusercontent.com/AP4HNQAFOyD-5IPKsT8MxuBYr2mWVtq6Fs1ThsTLMf0MbYd96mUw2A36g3LKDagSRD_U_71sChTCJtHjlRbgY71FbZFL8L76G8RseIMnMya2mlI2G30auYlinn3LiRJDXhi6-6pJLGE-nXVu2Q" alt=""/><figcaption>Source: <a href="https://insights.glassnode.com/the-week-on-chain-week-25-2022/" target="_blank" rel="noreferrer noopener">Glassnode</a></figcaption></figure>



If miners sell during bear cycles as they did in June, it&#8217;s a sign that mounting costs forced miners to shift their business plans. But it isn&#8217;t necessarily a sign of capitulation — when miners go out of business, exit the network and sell their bitcoin. Instead of just shifting gears, capitulation is total surrender.&nbsp;&nbsp;



<h3 class="wp-block-heading">A war of attrition&nbsp;</h3>



This recent type of selling is a signal that miners are in a war of attrition. At this point in the cycle, they double down on mining efforts — even at a loss. They do everything they can to keep the lights on in the hope they will be among the last hodlers standing.&nbsp;



To understand how and when miners are forced to capitulate, we need to explain hash rate mechanics and its role in determining bitcoin mining costs.



<h3 class="wp-block-heading">Using hash rate to calculate bitcoin mining costs&nbsp;&nbsp;</h3>



When you read “bitcoin hash rate,” just think, “total computing power on the bitcoin network.” Technically, it is the number of calculations, or more specifically hash guesses, the network makes every second.&nbsp;&nbsp;



To understand how and why each computer is racing to guess each block hash, check out our explainer on <a href="https://cms.blockworks.co/proof-of-work-vs-proof-of-stake-whats-the-difference/" target="_blank" rel="noreferrer noopener">proof-of-work vs. proof-of-stake</a> protocols.



To understand mining economics, it is crucial to know that as more computers and mining capability enter the network, the protocol makes this guessing game more difficult. As a result, miners need to use more electricity to earn the same amount of rewards.



When computing capability leaves the network, the hash rate decreases along with the difficulty level. A lag often occurs because the network makes difficulty adjustments every two weeks. But the point is that miners can expend less energy for a similar amount of bitcoin when fewer machines are running.&nbsp;



Because hash rate correlates with miners’ energy use, it provides a rough indicator of total cost. Other variables, including location, scale, maintenance and upgrades, also play a part, but the second biggest variable is financing. Many mining institutions have interest payments and debt obligations they need to service on top of operating costs. So even if a calculator states that miners can make a profit at a specific bitcoin price, hash rate and kilowatt price, it doesn&#8217;t factor in loan servicing.



For deeper analysis into Bitcoin’s hash rate and financial news concerning public miners, check out our full report by&nbsp;<a href="https://twitter.com/ryan_swansonx" target="_blank" rel="noreferrer noopener">Ryan Swanson</a>&nbsp;on&nbsp;<a href="https://www.blockworksresearch.com/research/bitcoin-state-of-min-ing/" target="_blank" rel="noreferrer noopener">The State of Bitcoin Min(ing)</a>.



<h3 class="wp-block-heading">Leverage addiction and contagion risks</h3>



Many miners took out substantial loans during the last bull cycle to finance the expansion of their mining operations. Instead of spending bitcoin, they used their mining equipment and bitcoin rewards as collateral to acquire high-interest loans with as little as a 30% <a href="https://cms.blockworks.co/wheres-the-liquidity-crypto-lending-explained/#LTV" target="_blank" rel="noreferrer noopener">LTV (loan-to-value) ratio</a>. <a href="https://www.bloomberg.com/news/articles/2022-06-24/almost-4-billion-in-bitcoin-miner-loans-are-coming-under-stress#xj4y7vzkg" target="_blank" rel="noreferrer noopener">Vera estimates</a> that there is about $4 billion in this type of financing. Lenders such as Galaxy Digital, NYDIG, BlockFi, Celsius, Foundry Networks and recently <a href="https://cms.blockworks.co/crashing-prices-expose-bitcoin-mining-industrys-addiction-to-leverage/" target="_blank" rel="noreferrer noopener">underwater Babel Finance</a> all accepted rigs as collateral in addition to cash down payments.



This type of financing adds pressure from two different directions. First, with much of their equipment locked as collateral, it is difficult for miners to scale production down when profitability is low. Second, the loan payments increase costs in a way that amplifies the unprofitability.&nbsp;&nbsp;&nbsp;



So if miners are struggling to service their loans, they could be forced to liquidate their bitcoin and hand over their machines to the lender. This would theoretically trigger miner capitulation.&nbsp;



And the loan agreements have contagion risks on both ends. The miners’ payment problems put pressure on lenders’ balance sheets, but miners also risk losing their deposited BTC collateral.&nbsp;



Miners who have borrowed from these <a href="https://cms.blockworks.co/wheres-the-liquidity-crypto-lending-explained" target="_blank" rel="noreferrer noopener">crypto lenders</a> face another risk. Many of the lenders had exposure to <a href="https://cms.blockworks.co/cryptocurrency-luna-lurches-as-terra-usd-volatility-continues-erasing-billions/" target="_blank" rel="noreferrer noopener">Terra/Luna when it collapsed</a>, and to <a href="https://cms.blockworks.co/celsius-lending-platform-suspends-withdrawals-and-transfers/" target="_blank" rel="noreferrer noopener">Celsius</a> and other companies that have faced liquidity crises. If any of these lenders claim bankruptcy, miners could lose their deposited collateral.&nbsp;



The fragility of some lenders’ balance sheets means they also need the miners to stay in business so they can continue making loan payments. But by keeping unprofitable miners in business, some speculate this act is effectively keeping the Bitcoin hash rate artificially high, meaning the cost of mining bitcoin does not drop to an affordable level.



<h3 class="wp-block-heading">What do miners gain from being the last hodler standing?</h3>



Despite unusually heavy bitcoin selling from miners in May and June, the hash rate reached an all-time high of 266 million terahashes per second on June 7, according to Blockchain.com, and is just over 208 million at the time of writing.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh6.googleusercontent.com/gzKeM2fkoJk4QAUpPebJ2KQtKhv-m3RIf2-R5Tp7uaZEYXGmEpSdzfz7m6aEG2xFZnt9aMFvXJQQD2yaLxn1NjTj0n4nOzqRrzhkhtAMeWMrTj6cseoCItZQbsP5iaBoqCP_MchJ6AiExFWgMrc" alt=""/><figcaption>Source: <a href="https://www.blockchain.com/charts/hash-rate" target="_blank" rel="noreferrer noopener">Blockchain.com</a></figcaption></figure>



We have yet to see a major capitulation and hash rate decline like the one that occurred from November 2018 to January 2019. But mere survival isn&#8217;t the only incentive keeping miners in an unprofitable position. The players still in the fight hope to acquire a larger share of mining rewards once less efficient or overleveraged participants are out of the game.&nbsp;



Most miners share rewards with a mining pool that distributes revenue based on the hash rate contribution of each participant. This structure makes mining revenue predictable but also increases competition. Miners must continue adding hash rate to maintain and increase their revenue share.&nbsp;



Because the total bitcoin reward is roughly the same every 10 minutes, miners that survive a shakeout get a larger cut. And if you believe that bitcoin is fundamentally an appreciating asset, that extra share of the pie has a multiplayer effect. Miners who remain in the game not only regain a profitable balance sheet, they gain more bitcoin at a discounted price.&nbsp;


[stock_market_widget type=&#8221;accordion&#8221; template=&#8221;chart&#8221; color=&#8221;#7523CD&#8221; assets=&#8221;BTC-USD&#8221; start_expanded=&#8221;true&#8221; display_currency_symbol=&#8221;true&#8221; api=&#8221;yf&#8221; chart_range=&#8221;1mo&#8221; chart_interval=&#8221;1d&#8221;]





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Bitcoin

Is Bitcoin Mining Still Profitable? The Economics Explained

Sam Martin

<div id="highlights-block_109da663053894bbbda91adbce4f10da" class="highlights">
 <ul>
 <li>BTC searches for direction in the midst of mixed sentiment among market participants</li>
 <li>Ubisoft, a large traditional game developer, announces in-game NFT integration</li>
 </ul>
 
</div>



Minor liquidations have taken place since bitcoin&#8217;s (<a href="https://blockworks.co/price/btc">BTC</a>) price topped out earlier today near $52,000.



BTC could be a beneficiary of lower bond yields as we enter into the new year.



PlanB&#8217;s BTC stock-to-flow model appears to be invalidated.



Bitcoin&#8217;s hash rate has made a full recovery since China banned mining earlier in 2021. 



Three Arrow Capital purchased $400 million in <a href="https://blockworks.co/price/eth">ETH</a>.



Ubisoft became the first major game studio to implement in-game NFTs.



First Trust filed for a metaverse ETF.



<h3 class="wp-block-heading">Latest in Macro:</h3>



<ul class="wp-block-list">
<li>S&amp;P 500: 4,686, +2.07%</li>



<li>NASDAQ: 15,686, +3.03%</li>



<li>Gold: $1,784, +0.20%</li>



<li>WTI Crude Oil: $72.03, +3.98%</li>



<li>10-Year Treasury: 1.468%, +0.085%</li>
</ul>



<h3 class="wp-block-heading">Latest in Crypto:</h3>



<ul class="wp-block-list">
<li><a href="https://blockworks.co/price/btc">BTC</a>: $50,657, +0.54%</li>



<li><a href="https://blockworks.co/price/eth">ETH</a>: $4,316, -0.51%</li>



<li>ETH/BTC: 0.0850, -1.32%</li>



<li>BTC.D: 41.16%, +0.42%</li>
</ul>



<h3 class="wp-block-heading">BTC</h3>



BTC continues to hover near $50,000 as it tries to find direction. The rally up to $52,000 was short lived, as levered longs have been liquidated in recent hours — albeit small numbers when zooming out. 


<div class="wp-block-image">
<figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="374" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png" alt="" class="wp-image-12299" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png?w=1370 1370w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">Source: Coinglass</figcaption></figure></div>


While macro uncertainty has digital asset investors nervous, some traditional financial analysts seem to think that the next year could be bright for crypto despite the backdrop of tightening monetary policy. 



&#8220;Bitcoin will face initial headwinds if the stock market drops, but to the extent that declining equity prices pressure bond yields and incentivize more central-bank liquidity, the crypto may come out a primary beneficiary,&#8221; reads <a href="https://assets.bbhub.io/professional/sites/10/1489771_Crypto-Dev2021Outlook.pdf" target="_blank" rel="noreferrer noopener">Bloomberg&#8217;s 2022 Crypto Outlook</a> report. &#8220;Our graphic depicts U.S. yields potentially on a trajectory to follow Japan and Europe into negative territory. The upcoming digital reserve asset may be a top standout to benefit.&#8221;


<div class="wp-block-image">
<figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="693" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png" alt="" class="wp-image-12300" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png?w=380 380w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png?w=386 386w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png?w=324 324w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png?w=1182 1182w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">Source: Bloomberg</figcaption></figure></div>


The crypto fear and greed index is currently sitting at 25, <a href="https://alternative.me/crypto/fear-and-greed-index/" target="_blank" rel="noreferrer noopener">according</a> to data from alternative.me. A lower number indicates fear and a higher number indicates greed on a 100 point scale.


<div class="wp-block-image">
<figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="722" height="640" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.08.59-PM.png" alt="" class="wp-image-12301" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.08.59-PM.png?w=722 722w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.08.59-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.08.59-PM.png?w=290 290w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.08.59-PM.png?w=294 294w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.08.59-PM.png?w=247 247w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.08.59-PM.png?w=80 80w" sizes="auto, (max-width: 722px) 100vw, 722px" /></figure></div>


<h3 class="wp-block-heading">Stock-to-flow model looks to be invalidated</h3>



<a href="https://planbtc.com" target="_blank" rel="noreferrer noopener">PlanB&#8217;s</a> renowned stock-to-flow model is looking more invalidated. On Oct. 31, PlanB took to <a href="https://twitter.com/100trillionUSD/status/1454962054297788417?s=20" target="_blank" rel="noreferrer noopener">Twitter</a> calling for $98,000 by the end of November and $135,000 by the end of December. BTC would need to have a remarkable end of year run to give his famous model a chance of survival. 


<div class="wp-block-image">
<figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="464" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png" alt="" class="wp-image-12302" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png?w=1104 1104w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">Source: Coinglass</figcaption></figure></div>


<h3 class="wp-block-heading">Bitcoin network hash rate</h3>



The Bitcoin network&#8217;s hash rate has almost fully recovered since the <a href="https://www.aljazeera.com/economy/2021/5/24/china-crackdown-forces-crypto-mining-operators-to-end-operations" target="_blank" rel="noreferrer noopener">China mining</a> ban earlier this year. The recent strength of the world&#8217;s largest digital asset&#8217;s hash rate could be viewed as a sign of the network&#8217;s health.


<div class="wp-block-image">
<figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="495" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg" alt="" class="wp-image-12303" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=80 80w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">Source: @Guzmanpintos</figcaption></figure></div>


<h3 class="wp-block-heading">Three Arrow Capital loading up on ETH</h3>



Roughly 92K ETH were purchased on FTX, Binance and Coinbase and sent to wallets marked as Three Arrow Capital (3ac) by <a href="https://www.nansen.ai" target="_blank" rel="noreferrer noopener">Nansen</a>, according to <a href="https://twitter.com/WuBlockchain/status/1468159951780532228?s=20" target="_blank" rel="noreferrer noopener">Wu Blockchain</a>. 



The wallet address of 3ac can be found <a href="https://etherscan.io/address/0x4862733b5fddfd35f35ea8ccf08f5045e57388b3" target="_blank" rel="noreferrer noopener">here</a> on Etherscan.



The move comes as a surprise to many digital asset investors. Zhu Su, CEO and CIO at 3ac, wrote recently on Twitter: &#8220;Yes I have abandoned Ethereum despite supporting it in the past. Yes Ethereum has abandoned its users despite supporting them in the past.&#8221;



<h3 class="wp-block-heading">Non-Fungible Tokens (NFTs)</h3>



Ubisoft, the game developer behind the popular Tom Clancy series, will become the first major game studio to incorporate NFTs in-game, <a href="https://decrypt.co/87752/ubisoft-first-major-gaming-company-launch-in-game-nfts" target="_blank" rel="noreferrer noopener">according</a> to a Decrypt report.



Trading data from <a href="https://opensea.io/rankings" target="_blank" rel="noreferrer noopener">OpenSea</a> and <a href="https://solanalysis.com" target="_blank" rel="noreferrer noopener">Solanalysis</a> of some of the top Solana and Ethereum projects can be found below:


<div class="wp-block-image">
<figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="334" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png" alt="" class="wp-image-12297" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=2048 2048w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">Top Ethereum Projects</figcaption></figure></div>

<div class="wp-block-image">
<figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="284" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png" alt="" class="wp-image-12298" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=80 80w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">Top Solana Projects </figcaption></figure></div>


If you made it this far, thanks for reading! I am looking forward to catching up on tomorrow.



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