⚡️ Mining that was privatized, let it be nationalized

Ethan Vera
Ethan Vera

Happy 146-days A.H. everyone.

After successfully reducing steel & agriculture production, the Venezuelan Government is eyeing the mining industry as the next area to nationalize.

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Trading Update

Rig Price Index

Latest-gen rigs (Bitmain S19 and Whatsminer M30s) continue to be delivered to mining farms globally. Due to manufacturing constraints, these machines are still in tight supply and hard to secure in bulk at a reasonable price. However, this has had a spillover effect on secondary markets. Mining farms are quickly replacing their older-gen equipment and dumping them into the secondary markets. S9s are trading at some of the lowest points since after the halving.

Hashprice Index

Lead by an 11.3% increase in Network Difficulty on Sep-19th, hashprice has fallen drastically over the period. Miners are once again making less than 8 cents USD per TH of mining power. The lowest levels in history. With Bitcoin price bouncing around in the $10-11k range, transaction fees around 7-12% of the block reward and ever-increasing difficulty, miners are feeling the squeeze. Miners without very low-cost energy or new-gen equipment will be operating in the red.

Difficulty Futures

FTX Difficulty Futures have low trading volumes these days. But right now the market for Q4 2020 is trading at 20.832 representing a ~6.7% increase in hashrate by mid-November from current levels. While new machines are continuing to get delivered, the rainy season in Sichuan is ending soon.

Mining News

Core Scientific and Bitmain Partner on Repair Center

  • This is the first warranty repair center servicing and repairing Bitmain's machines using original parts in North America. (press release)

  • The repair center is a big deal because it saves North American miners time and money for shipping their machines all the way back to Asia for service. Miners that bought Bitmain’s notoriously faulty S17s have experienced lots of downtime waiting for their machines to ship internationally. Core believes that shipping savings will be as much as $100/unit and cut the repair time by as much as two weeks.

  • I wonder if in the future the repair center will only service machines purchased through Jihan controlled-Bitmain (and not Micree’s side). As the company remains divided, initiatives like this become a bit more confusing.

  • Antminers still make up a big portion of mining hardware as seen in Cambridge’s analysis below.

Venezuela Nationalized Mining Pool

  • Last week it was reported that the Venezuelan Government was thinking about creating a national mining pool that miners would be forced to join. (article)

  • As a pool-operator for the past 3 years, I think this is an incredibly bad idea. First, the technical lift to build a pool, maintain it, and transition it to profit-switching will not be an easy task for them. Mining Pools as narrow-focused & single-chain are coming to an end. They will be replaced by profit-switching pools and hash exchanges that yield higher returns per hash.

  • Also, mining pools are increasingly being connected to financial services such as lending/borrowing, trading & hedging. Mining pools act as the bridge between the miners and these services so Venezuelan miners would get caught off.

  • Given the mining pool controls miner payments the Government could easily collect additional taxes from miners or even freeze their funds. They may even eventually pay them out in fiat (petro) instead of Bitcoin for their computing power.

  • Overall I think there is a low % chance this actually ends up happening and there is no serious effort from the government to make this happen. If it does imagine states’ attacking each other through blockwitholding?

Ebang Earnings

  • Ebang (Nasdaq: EBON) reported earnings a few days ago. Revenue decreased to $11mm in H1-2020, down 51% from last year.
  • As Matt pointed out on Twitter, similar to Canaan, Ebang cites negative sales impacts caused by covid and the halving. Although this is probably true to an extent, Ebang's weak product offering was also likely a major contributor.
  • Interestingly, out of Ebang’s $109mm in revenue in 2019, ~$87mm (or 80%) of it came in the second half of the year. I don’t fully understand why/if their business might be seasonal but we could see an uptick in revenue in H2-2020.
  • Ebang’s Trailing-Twelve-Month (TTM) Revenue is $98mm. At an enterprise value (EV) of $1.36bn that puts them at around a 14x EV/Revenue trading multiple. That is a considerable premium over competitor Canaan who is trading at ~1.0x EV/Revenue.
  • Looking into Ebang’s shareholder registry you can see that the company is held mostly by insiders and the general public. So they have seemed to do a good job of getting retail interest in the stock with very little participation from institutions.

MicroBT Sets up a Facility in Malaysia

  • MicroBT is following Bitmain’s lead in setting up a facility outside of China to help skirt the 25% import tariff that ASICs face coming into the US.

  • Current mining economics have latest-gen machines at roughly at 795-day payback period (assuming $0.05 kWh). Adding ~200 days onto this (25% capex increase) makes mining in the US extremely difficult. So it can be understood why manufacturers moving outside of China is such a large deal.

  • Currently, the US imports a significant amount of goods from Malaysia, and as the trade war heats up this could continue to increase.

Mining Educational Content

The University of Cambridge put out a comprehensive report on the state of Bitcoin and mining. The mining section is extremely well done and has some really interesting and novel insights. Apolline and team did a great job.

Read the full report here:

Cryptoasset Benchmarking Study

About Luxor

Luxor is a US-based mining company.

We run mining pools for Bitcoin, Dash, Zcash, Horizen, Decred, Sia and more. We launched a new Equihash Profit Switching Algorithm called Luxor Switch and Catalyst which allows altcoin miners to receive payments for their hashrate in Bitcoin.

We also run mining data website, Hashrate Index.

We can be found on Twitter or Discord.

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Ethan Vera Twitter

COO at Luxor Technology