Hashpower Doubles In Bear Market, Breakeven Cost Skyrockets
Cryptocurrency investors have had a rough year, to say the least, with the collective value of all crypto assets declining by over 80% in the span of eight months. In spite of this violent sell-off, miners have still been upping their investment into this nascent asset class.
As recently tweeted by Sam Doctor, Fundstrat Global Advisor’s quantitative strategist and analyst, the hashrate (hashpower) of the Bitcoin network has doubled since May, from ~28 quadrillion hashes per second (EH/s) to approximately 57 EH/s as it is today.
Despite $BTC bear market, hashpower doubled since May to 57 EH/s – Even with upgrades to existing equipment, implies almost 1GW of new power consumption vs 5.2GW in May ’18. Breakeven now $7300 ($5300 cash BE) vs. $6000 in May – Mining becoming FCF -ive @fundstrat #Crypto pic.twitter.com/pTTWJWlrz0
— Sam Doctor (@fundstratQuant) September 14, 2018
As such, per Doctor’s analysis, in which he cited the Bitcoin network’s power consumption, cost of ASICs and more, the breakeven cost of mining one BTC is now $7,300 compared to $6,000 in May 2018. Elaborating, Doctor wrote:
$BTC bear market, hashpower doubled since May to 57 EH/s – Even with upgrades to existing equipment, implies almost 1GW of new power consumption vs 5.2GW in May ’18. Breakeven now $7300 ($5300 cash BE) vs. $6000 in May – Mining becoming FCF.
Thomas Lee, a well-known crypto proponent and Fundstrat’s head of research, backed up the analyst’s claims, retweeting his research and letting his 56.8k followers know that the figures were valid.
Updated estimates of fully loaded breakeven cost (now $7300 vs $6000 previously) for #btc based on the quant model developed by our quant/data scientist @fundstratQuant #bitcoin @BITMAINtech https://t.co/Ya6CIYtsWA
— Thomas Lee (@fundstrat) September 15, 2018
For those who aren’t in the loop, Lee, who has appeared on CNBC’s crypto-related segments on multiple occasions to convey his bullish sentiment, has claimed that the breakeven cost of mining has proven to have been a strong line of support and a potential hard bottom for the foremost crypto asset.
Moreover, the near-infamous Bitcoin permabull has also noted that Bitcoin can (and often does) trade at upwards of 2.5x over its breakeven mining cost, which was apparently seen during last year’s bull run and over the course of Bitcoin’s decade-long history.
Keeping this in mind, it is clear that the Fundstrat executive still sees upside for the crypto asset that has long been dubbed “digital gold.”
“They’re Happy To Accumulate”
As reported by Ethereum World News in August, the rapidly rising hashrate has been attributed to larger corporate miners expanding their operations, even amidst consumer, home-based miners dropping their mining rigs due to low or no profitability. Marco Streng, the CEO of Genesis Mining, noted:
There are still major expansions happening, especially from more efficient miners. The expansion is so big that it compensated for the drop-out of not-so-efficient miners.
And as pointed out by David Sapper, the COO of Blockbid, a lesser-known crypto exchange, this indicates that these firms are willing to continue to mine Bitcoin, even if profitability has tanked. Sapper elaborated, noting:
The increased hash rate means people are here for the long-term because they’re happy to just accumulate what they have, potentially even run at a loss. At the same time, At the same time, they do sometimes have to clear house and dump (though).
This brings up a very interesting point, where miners, who are operating at equilibrium or a slight/medium-loss are only keeping their machines on to accumulate crypto for the long-haul. This move suggests that while some firms may need to sell some crypto to cover costs, that this longer-term ‘HODL’ approach may indicate that the firms backing this space are expecting for this industry to succeed in the long-run.
Not only does the rising hashrate have financial implications, but also security implications as well. Conan O’Bitcoin, an up and coming cryptocurrency commentator, pointed out that one BTC confirmation today is as secure as eight confirmations exactly one year ago, or 33 confirmations two years ago.
Current #bitcoin hash rate is at ~60 EH/s. To put this into perspective, 1 confirmation today is as secure as 8 confirmations were a year ago or 33 confirmations two years ago. 🤔🔐👍
Today : 60EH/s
Last Year: 7.5EH/s
2 Years Ago: 1.80 EH/s pic.twitter.com/oQ1AgIagN5
— Conan O’Bitcoin (@ConanOBitcoin) September 14, 2018
And while many would see this as irrelevant, it is important to note that the security of blockchains will become an increasingly important topic of discussion as crypto assets get adopted across the world.