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The Hard Fork – Weekly Market Commentary

This Week’s Topics:
1) Analyzing Bitcoin mining break-evens into the Halving
2) Dharma launches twitter based payments
3) Mining company files for $100m US IPO

Indices Round-up
TradeBlock Index Asset1 Price ($) 7d∆2
XLMX Stellar Lumens 0.06 24.72%
XMRX Monero 61.91 7.64%
ETX Ethereum 197.14 7.47%
XBX Bitcoin 2.68 6.67%
ECX Ethereum Classic 5.89 5.45%
LTX Litecoin 44.87 3.73%
ZCX Zcash 44.97 2.59%
EOSX EOS 2.73 2.13%
XRX XRP 0.20 1.19%
BCX Bitcoin Cash 242 1.19%
1. Underlying asset sorted in descending order by 7 day price movers.
2. 7 day price movers monitored from 04/19/2020 06:00 ET thru 04/26/2020 06:00 ET.

 

7 day price movers

Digital currencies posted a broad rally on the week as the space extended its gains. Among our indexed currencies, Stellar Lumens traded up the most, gaining nearly 25%. Conversely, Bitcoin Cash traded up the least, gaining a more modest 1.19%. In traditional markets, US equities traded roughly flat while oil futures saw a historic slump in prices, with May contracts reaching negative levels, amidst a glut in supply. On the sell-off, the largest oil ETF, USO, saw accelerated volatility which soared past that of bitcoin.

 

Figure 1: Oil volatility surpasses that of bitcoin

Data for chart sourced from TradeBlock and YahooFinance

 

Analyzing bitcoin mining break-evens into the halving

The pivotal bitcoin halving is approximately two weeks away. Every four years the network undergoes a 50% reduction in new token supply. The first halving occurred on November 28, 2012 and the second halving occurred on July 9, 2016 when issuance was reduced from 50 to 25 and 25 to 12.5 bitcoin per block for the respective event. We analyzed mining break-evens approximately 20 days out from each of the past halvings and mining break-evens immediately following the halving as a comparison for the 2020 halving. Our full detailed assumptions can be found here.

Figure 2: Bitcoin mining profitability and mining analysis

 

Value 2012 2016 2020
Hash rate 23 TH/s 25 TH/s 1,500 PH/s 1,580 PH/s 110 EH/s 135 EH/s
Coinbase reward (BTC) 50.00 25.00 25.00 12.50 12.50 6.25
Breakeven cost ($) 6.07 12.68 250.00 453.00 7,300.00 15,100.00
Bitcoin market price ($) 10.50 13.50 655.00 680.00 7,515.00 N/A
Gross profit (%) 42.19 6.07 61.83 33.38 2.86 N/A

 

As shown in the figure above, mining break-evens increase considerably after each halving, as the hash rate stays nearly similar but the revenue generated from mining falls by half. Instead of finding a large sustained crash in hash rate after past halvings, as miners cut rigs, we found that the market price of bitcoin rallied to levels above mining break-evens. Assuming a modest increase in the network hash rate, we project mining break-evens to rise to ~$15,000 per coin after the upcoming halving. While bitcoin has seen a strong rally of late, if prices do not rise to around these levels, we would expect a decline in hash rate as low profit operators go offline.

 

Crypto company launches twitter based payments

This past week Dharma announced a micropayments platform that allows any account holder to send USD to any Twitter handle. Micropayments on social network platforms such as Twitter could allow for tips regarding quality tweet content, charitable donations, or business transactions in a viral manner–such as to artists who are showcasing their work on the platform.

In addition to facilitating the transfer of value, Dharma offers Twitter wallets 3.6% APR on the cash in their accounts. Dharma incorporates Ethereum smart contracts to execute various aspects of its P2P business. The company has received funding from large players in the digital currency and blockchain payments space, including Coinbase, Ripple, and Fintech Collective.

 

Mining company files for $100m US IPO

On Friday, Ebang International filed with the US SEC to raise up to $100 million in an IPO, planning to list on either the NYSE or Nasdaq. Ebang International primarily sells ASIC chips and integrated circuits for use in bitcoin mining rigs. While the firm booked $109 million in revenue for the 12 months ending December 31, 2019, revenues declined 66% over the same period. If Ebang successfully completes its IPO, it will join the bitcoin mining manufacturer, Canaan, which IPO’d last year and raised $90 million.

2018 and early 2019 were challenging times for bitcoin mining operators as a decline in the market price of bitcoin yet a rising hash rate pushed mining operators into negative profitability.The first few months of 2020, had proved to be profitable as we estimate the average commercial mining facility was operating at modestly healthy margins before a COVID-19 sell-off in early March pushed miners briefly into the red.

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