The mining rig market is hot. When Bitcoin price significantly increases, everything in the mining industry ramps up. Current miners seek to expand their operations to capitalize on wider profit margins. New miners also seek to enter and secure a slice of the lucrative mining conditions.
With increased demand scrambling after a limited rig supply, the prices of mining machines on the secondary market must rise. Bitmain and MicroBT are reportedly sold out until May 2021 which forces miners to turn to the secondary market. Since the start of November, the prices of latest-generation rigs have increased by roughly 35%.
Everybody is bullish on Bitcoin and the rise in the price of mining machines is certainly reflecting that. One firm that did manage to secure a purchase agreement for latest-generation rigs was Marathon Patent Group. Marathon will receive 6,000 Antminer S-19J Pro rigs in August 2021 and another 4,000 in September 2021.
Marathon estimates that the purchase will bring their total hashrate output to 3.56 EH/s. With large firms like Marathon buying bulk amounts and sentiment indicators showing all-time highs for bullish outlooks, it doesn’t look like the market for mining machines will be slowing down anytime soon.
Market Movements – Derivatives Market and Lower Volume As A Leading Indicator
Earlier this week, we released a market update that suggested Bitcoin may be due a pullback. Lower volume and perpetual derivatives trading at a premium indicated that the market may be overheated and increased the odds of a sell-off ensuing.
Over the following days, Bitcoin declined from roughly $19k to as low as ~$17,635. The drop below $18k quickly recovered on higher volume. This suggests that significant bids and buying pressure rest below the $18k level.
At the time of writing, Bitcoin price is trading ~$18,350. The price drop has removed the premium from the perpetual derivatives market. A rise from here will be primarily driven by spot market demand.
Industry Developments – Square Investment Initiative, MicroStrategy Purchase, Pendal Group Entry, and the STABLE Act
Jack Dorsey’s Square launches an investment initiative to support companies driving renewables adoption in Bitcoin mining. The initiative has dedicated $10 million to invest. Any of the returns from investments will be reinvested into the initiative. In the announcement, CEO Jack Dorsey noted that he foresees cryptocurrency being entirely powered by renewables in the future.
MicroStrategy invests another $50 million into Bitcoin and intends to raise $550 million for further investment. On December 4th, MicroStrategy revealed that it invested another $50 million into the asset bringing their total exposure to 40,824 bitcoin. Yesterday, the firm announced an offering of bond instruments to raise $550 million. The firm intends to invest the net proceeds of the bond offering into Bitcoin.
Spurred by client-demand, Australian investment management firm Pendal Group has invested in Bitcoin futures. Pendal Group positioned itself in Bitcoin after several of the firm’s clients asked about the asset. The firm’s head of bond, income, and defensive strategies, Vimal Gor, has been quoted in the media as saying “bitcoin is superior to gold”.
Stablecoin market capitalization grows by almost 400% YTD. The combined market capitalization of stablecoins has grown from just over $5 billion at the start of the year to roughly $25 billion. USD Tether (USDT) accounts for the dominant portion of stablecoin value with a market cap of roughly $20 billion. Three members of the US Congress have proposed the STABLE Act which would require stablecoin issuers to get a banking charter and be approved by the Federal Reserve and FDIC. For the law to be enacted, it needs to be passed on to the House Floor for discussion and voting.
Bitcoin mining researcher Karim Helmy joins the HASHR8 podcast to discuss his research in the industry. Karim recently published research which estimates the funds flowing from miner wallets. Karim also discusses CoinMetric’s hashrate indexes.