Welcome to the 44th issue of the Broker’s Beat. This week, we study Bitcoin’s recovery after yesterday’s crash and examine the reasons behind the sudden drop in hash rate and miner revenue.
BY THE NUMBERS
“In an effort to address the ongoing silicon supply shortage and bloated GPU prices, hardware manufacturer Nvidia is set to reduce the hashrates on its latest GeForce graphics cards to disincentivize miners.”
Source: Coin Telegraph
“Authorities in Inner Mongolia are cracking down further on crypto mining operations that may be jeopardizing the region’s bid to reduce carbon emissions.”
“Blockchain technology provider Blockstream has announced a strategic bitcoin mining partnership with crypto asset service manager BlockFi.”
“Sven Giegold, a longtime member of the European Parliament, is calling for restricting Bitcoin mining.”
Source: Crypto Potato
“NThe top BTC minings pools have briefly shown support for Taproot activation. However, the upgrade seems unlikely for this November, as miners need to reach a 90% consensus in a short period.”
THE BITCOIN BEAT
“I was wrong, BTC is energy efficient” is the tweet everyone is hoping to see floating around from erstwhile beloved Elon. But it hasn’t come yet.
In the meantime, BTC is trying to recover from a heavy sell-off in nearly 14 months. Market dynamics remain erratic. As of the time of this writing, BTCUSD is exchanging hands around $39,500, with Bitcoin market cap dominance creeping back above 40%. Yes, Elon Musk’s comments did not help, and neither did another ban from Chinese authorities.
The BTCUSD technical outlook remains bearish in the short to medium term.
Momentum is still trending lower, matching recent price actions.
We expect some consolidation from current levels and only a close above $47k will signal a temporary low has been set in place. Alternatively, market participants will be wary of $27k (50-day average) and long-term support sitting around $21,020
Sometimes we discuss “unusual” inflows and outflows of Bitcoin, but yesterday was a complete mess of a day, and it doesn’t make sense to break down the micro of it.
On a macro level, we did see significant inflows to exchanges brought reserves to a high not seen since early March. Until this measure drops, we expect volatility to be higher. The amount of leveraged positions wiped out is staggering, and the market will take time to regain its legs.
Additionally, the BTC funding rate across all exchanges has hit a year-low, also a result of leveraged positions being wiped out. We’ve seen multiple measures of long liquidations, but CryptoQuant’s reporting of 10,525 BTC being liquidated in just one hour is what stands out to us the most.
Two major shifts have occurred that will affect the hash rate going forward.
First, you have Nvidia lowering the hash rate for their graphics card in an effort to disincentivize mining. This is part of a push to stabilize their business, since volatile Bitcoin returns mean that Nvidia has accidentally become a Bitcoin company, something they would currently like to avoid.
Second, you have a massive increase in the demand for electricity in the Sichuan province of China, which means that electricity is in a shortage. This is interesting because mining companies were originally drawn to this area due to incentives set up by the Chinese government, and now are suffering consequences from it.
The Bitcoin hash rate chart above shows a sharp downward trend in the total hash rate, and we expect this trend to continue until some certainty comes back to the chip and electricity supply.
Of course, this is largely due to the drop in miner’s revenue, which shows a sharp drop in the chart below:
The recent drop and retracement combines with other business factors to bring uncertainty to the mining business, and this will take some time to fix itself.
With yesterday’s crash and following retracement, the inflows and outflows have been chaotic to say the least. Institutional buyers seem to have made some big moves at the bottom, but time will tell how much volume they actually picked up during the crash.
What was interesting was how yesterday China made an announcement banning payment companies and financial institutions from providing services to any companies doing business with cryptocurrencies.
This strikes us as unlikely to be a complete coincidence. It may not have been coordinated, but was definitely well-timed as a push against crypto. We think many more country-on-crypto attacks will come in the future as they start to view crypto as more of a threat.
Finally, another important partnership was announced yesterday. FTX and Circle are teaming up for fiat-to-crypto enablement. FTX co-founder and CEO Sam Bankman-Fried is quoted saying:
“Circle has been a pioneer in making fiat work on blockchains for nearly eight years and has built deep capabilities to ease payments in crypto.”
The speed and intensity FTX has been expanding at is impressive, to say the least, and this is just one more moment of note in their rapid expansion.
That’s all for this week! If you’re free on June 1st and 2nd, our free NFT Summit is taking place on those days. We’ve got a great list of speakers lined up, and you’ll be an NFT expert by the time the summit is over.