The below is a direct extract from Marty’s Bent Number 1240: “Another downward difficulty adjustment is in progress.” Subscribe to the newsletter here.Bit
Don’t look now, but July 21, 2022 should bring a downward difficulty adjustment of around 5%, which will be the third consecutive downward adjustment and the fourth in the last five difficulty eras. Marking the longest streak of downward adjustments since that time in 2021, when miners were forced to unplug and migrate out of China as quickly as possible.
As the global macroeconomic outlook deteriorates through 2022 and the bitcoin market experiences a massive deleveraging event following Ponzi blasts, many lenders who have been exposed to one particular Ponzi scheme – 3 Arrows Capital – have completely wiped out and brought the price of bitcoin down with them, bitcoin miners are feeling the pain. The downward pressure on the price of bitcoin drove the price of hash down with it; reaching a low of $0.08 TH/day exactly one week ago.
The hash price has since rallied to TH$0.10/day with the recent price spike, but it’s pretty clear that many in the mining industry are feeling the pain. The two metrics I watch to measure the pain are publicly traded miner treasuries – holding or selling – and the price of ASICs. Over the past two months, publicly traded miners have sold tens of thousands of bitcoins to pay off debt and maintain a cash trail for their businesses. At the same time, the price of ASICs, measured in dollars per terahash, has completely exploded, reaching levels not seen since late 2020.
I personally see high end machines being sold for $25-$30/TH this week. For context, these same caliber machines were selling well above $100/TH just before China’s ban and at around $100/TH in December 2022 when the dust created by China’s ban s is dissipated. The price of ASICs is falling rapidly as miners who would rather not sell bitcoin (or don’t have any to sell in the first place) decide to sell their machines instead to cover their expenses and debts. There are currently tens of thousands of machines that haven’t even been opened yet, sitting in warehouses across the United States. Some publicly traded miners have used their access to capital markets to secure massive ASIC futures orders that have been delivered over the course of this year. Some of these miners are struggling to find the capacity to plug in all these machines in a timely manner. With mining stocks absolutely hammered alongside the price of bitcoin, it turns out to be too costly to hold onto these ASICs, which are also falling in value.
On top of that, miners with relatively high electricity prices have seen their operations become unprofitable. If they are unable to take losses for consecutive months, they will close and liquidate their assets (ASIC). Hence the extremely low ASIC prices the market is currently experiencing.
I expect the price of ASICs to continue falling through the summer as the markets continue to crash and bitcoin freezes in the low $20,000 range. These sellouts from desperate miners and manufacturers present an incredible opportunity for anyone in the mining industry with significant capital and the ability to execute. Your Uncle Marty thinks we will consider late summer 2022 as one of the best times in bitcoin history to get into mining. If individuals or businesses recover ASICs at these levels, are able to lock in reasonable power prices, plug in their machines quickly, and the price of bitcoin recovers at some point later this year, the time it will take for these machines to return on investment will be very short.
We will keep you updated on the situation as it unfolds. Until then, enjoy the downward difficulty adjustment! A nice reminder that Bitcoin is working as intended and you’ll likely stack more sats if you’re a miner who’s hashing right now.