Q1 2018 Bitcoin Mining Projections

Q1 2018 Bitcoin Mining Projections

As you might have read, we are of the opinion that the two factors that need to be modeled when projecting mining returns are growth of the global hash rate, and depending on the audience, the price of a cryptocurrency with respect to base currency. As we’ve discussed, one company openly acknowledges to controlling at least 70% of the market for bitcoin mining rigs, and from our observations, a higher percentage in some alt coins. Therefore, there are at least some people who have access to a much better approximation of the global hash rate – you need only look at Bitmain’s production schedule.

But while Bitmain professes to not disclose such information, their fabrication node – Taiwan Semiconductor Manufacturing or TSCM – apparently openly shares this information with research analysts. A report was issued today from one of the major investment banks[1], having been distributed to their ultra-high net worth clients positing the virtues of energy-related investments due to the explosive growth in the bitcoin network infrastructure. Unsurprising that the opportunity uncovered by the assembling of their unfair advantage (“research”) was overlooked, in favor of a more sensationalist though less useful story. And really, if your first reaction is to see dollar signs in the energy aspect of bitcoin and not the innovation and liberation it purports, then perhaps you’re a better candidate for our main competitor.

Incorporating New Data

To make these claims, they observed the production schedule reserved by Bitmain chips at TSCM. They claim that Q3/Q4 production has been 10,000 wafers per month – with one wafer supporting 27-30 units at 189 chips each – ramping up to 15,000-20,000 wafers per month in Q1. We had validated the wafer to unit conversion whilst conducting our own independent research this past summer (and also learned that wafers are not cheap), but have consistently underestimated the magnitude of Bitmain’s batches.

These numbers are reasonable if you assume that some subset of those units are used in producing their other devices. Some back-of-the-envelope math shows that at 16 exahash – if you assume everyone is using 14 TH/s Antminer S9s – then that’s around 1.1 million units[2]. So this would assume production at a high end of 270,000-300,000 units in each month in Q3/Q4, which is a little too high. However, if you assume that those assumptions also include the ~100,000 LTC rigs and ~100,000 Dash rigs produced, then perhaps the numbers do line up. If the hash rate is increasing by ~10% per month, this would imply roughly 100,000 new units put online in the Month of December – which we did observe.

So let’s assume this banking research department is right, and Bitmain is planning on releasing between 400,000 – 600,000 new units per month in Q1. Does this spell the disastrous end of Bitcoin Mining? Is the bitcoin network going to resemble the Dash network?

What this Implies

When we include the new assumptions in our model, we see that things aren’t so bleak. Bitcoin mining has been really profitable, as in >$800 per month in December profitable, before costs. Disregarding your costs to produce a month’s worth of mining proceeds for a minute, there’s only two ways to reduce the current ROI – a massive drop in Bitcoin price, or a substantial increase in hash power. If we hold the price fixed, then the hash power would have to increase by 100% to cut profitability down to $400 per month. As we just calculated, that would be the immediate introduction of 1.1 million 14 TH/s S9s.

So let’s adjust the model updating for the new information:

At 500,000 units per month, the mining reward per miner drops to ~.00025 BTC (.25 mBTC) per day. At $15,000 a bitcoin, this is $3.75. Not great, but even at these extreme production rates, still profitable given no change in BTC price. To be honest, this took us a bit by surprise. So, in light of this new information, how would we answer the question we inevitably get 4-5x a day: “Should I buy a bitcoin miner?”

Looking at a 1 year horizon, an S9 can be expected to produce just shy of .2 bitcoin. That’s $3k at today’s rates. Again, this assumes no change in the price of Bitcoin which may not be a realistic expectation if there are 500,000 new units on the market each month. Sure, much of that will be centralized among some of the largest players and some scary-large percentage may be hosted directly by Bitmain themselves, but new participants leads to more demand for a currency that by definition is fixed in supply. In all likelihood, .2 bitcoin may represent a large amount of fiat currency – just look at our price projection:

OK so that last screenshot was partly in jest – the exponentially weighted moving average is overweighting the ~$1500 bitcoin went up in the last 24 hours and projecting that volatility forward. But one can dream…

In summary, even if this banking research reports proves true, there is still vast amounts of money to be made in bitcoin mining in 2018.

[1] Does it matter which one? Because by month’s end it will be all of them.

[2] 16,000,000,000,000,000,000 / 14,000,000,000,000 = 1,142,857

  1. What would be the best way to invest 1 million euros in bitcoins? Exchange them or mining?

  2. I have been mining for 6 months with an S9 from Bitmain. Mainly to study.

    Detractors that do not know much and say that all this is ethereal, intangible, they can not be further from the truth. Behind this there is electric power, networked machines, internet nodes, IT hard-liners all of which that supports the increasing transactions.

    Firstly I mined with SlushPool where I Could fiond some data about the distribution of hash power within the Pool users…. the bad thing is that hash power is concentrated just as in real life is income distribution.

    It is supposed that there is a certain democratization, where each one is worth, but what really happens in the end is that each one is worth its calculation/computing power, basics of the PoW paradigm….that it is concentrated in a few hands, just as the same as income distribution…..and the PoS it will be the same! If it is at the end the adopted system.

    Figure shows (if you want, ask me please for the figure) for SlushPool that 1% of the pool miners are hoarding almost 75% of the hash power, then there is a huge 60% of the total of miners who achieve a 1.4% of the hash power and finally the typical middle class, there I am (being part of the yellow circle), which represents 39% of the miners with 25% hash power.

    Figures above are only for SlushPool that shared by that time about 8% of the total hash power – close to 9,7 EH/s and today close to 21 EH/s. Anyway, since only SlushPool opens its miners capacity distribution figures one could assume that it is more or less the same for the rest of the pools….as I use to say, we are only mirroring in all of our cultural expressions what we have built so far as humankind….and it is as so with income distribution, energy distribution, food distribution or even hash power distribution.

    With regards to energy consumption, one S9 miner from Bitmain does consume about 1000 KWh month and has a hash power of about 12,58 TH/s or 0,0158 PH/s so the world total energy consumption in criptomining ranges close to 9 TWh year (october 2017) and today, February 2018, something like 19 TWh year.

    It is worth taking into account that the world consumes about 130.000 TWh year of energy (oil, gas, coal, electricity, renewable, etc.), but electricity the world consumes app 20.000 TWh year, that is, the cryptocurrency mining activity is only a 0.095% of total world electricity consumption.

    Chile consumes app 400 TWh year of energy, of which almost 48 TWh year is electricity. Argentina consumes app 800 TWh year of energy, of which app 90 TWh year are electricity. As for USA, its total energy consumption ranges close to 30.000 TWh year with a 13% of it being electricity (3.900 TWh year) … referential figures but quite online.

    Finally, if we do a rough projection from the investment required to set up mining infra, with US 2.000, in Chile, you can rise 12,58 TH/s (a humble S9 from Bitmain), not considering housing or networking. Anyway, total hash power in the world triggers an investment of about 3,4 Billion USD plus housing and networking! World GDP is more or less 70 Trillion USD.

    To finish such a boring post, my aim was to show how my humble miner reached a non viable operating condition. When the same hash power was able to get 0,005 btc/day was all ok….today same hash power is producing about 0,0014 and things are very different, and it will keep droping. That is why the other day I posted “Combination of difficulty, hash power and market price makes me decide to stop mining”. Below US 8000 x btc there is no surplus at all!

    If the BTC price drops more then no one will do the mining anymore. That it is also why I decided to stop mining, looking for the same type of decision from the rest of the miners, at least those not in concentrated hands and hoping the distribution of world hash power being not that bad as in SlushPool.

    So today to put it on (my miner) price has to be higher than 16.000 (to at least make some profit from the energy consumed) or pools have to share more with miners, a lot more!

    well, we still have the mining power in china and some other countries where energy is free or cheaper…but not sure if there will be power enough to support growth of the system with only its current 75% of hash power (the one in the few 1% of the miners).

    We will see

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