13 Mai 2020

Market Commentary: After the bitcoin halving

Patrick Heusser

Patrick Heusser

Senior Trader bei Crypto Broker AG

Über den Autor

The bitcoin halving is now a thing of the past, and life goes on…

Many retail traders were either shook out of their positions before the halving, or did not get their post-halving rally like so many were shouting about on crypto twitter.

A similar misconception was the expected drop in hash-rate. Both price and hash-rate do not move in sync with events and it is never a straight line on the time axis. It is similar to the term „it is priced in“. These days information nearly travels at the speed of light around the globe. Events that are planned and communicated in advance get priced immediately by the market. You may say things get „mispriced“, but then it is only a question of time before you know if it was right.

We already posted a report on the hash-rate in early April, which was based on a report written by Blockware Solution. They explain very well just how non-linear the revenue curve of a mining operation is. Here is the link to look at the report again.

Just to summarise the main variables that need estimatation in order to have an educated guess on how profitable a mining operation is:
– Energy price
– What hardware do they run (S9, S17, or something else)
– How do/did they handle the treasury management of their minted coins
– General operational costs

Energy prices are the most important factor, but hardware and treasury management will add a lot of swings into the non-linear revenue curve. This is similar to what we are experiencing right now in terms of the hash-rate curve. For reasons we stated above, the hash-rate is not coming down. The abovementioned factors distort the expectations of the general retail trader: they are too simplistic and too linear.

My conclusion is that some of the mining operations using old equipment (S9) are in limbo. They are probably just about break-even with the price around 9k. They need to make a call: is the price of BTC$ going to go up very soon, or are we going to see consolidation and possibly even a move lower.

They cannot simply shut down their operations just because they are currently not profitable, and they have energy consumption agreements that might still run for another few months. If they shut down and disregard the agreements, they will not get others with the same favourable conditions in case the price goes back up again (they might even have to pay a penalty fine). So, they need to take a gamble on the price.

I believe the longer we stay at the current levels, the 10.5k resistance will get stronger and selling pressure will mount with every week. I reckon that mining capitulation will first be seen in the price (the capitulation selling wave) and later on in the drop in hash-rate, but I have yet to figure out how to get a good grasp on the pain threshold of mining companies.