Konza Capital Newsletter #5
On inflation prints around the world and the true cost of dollar hegemony
Global Unrest Amid Rising Markets
Bitcoin and broader crypto rallied hard this past week, with BTC up around 7% at the time of writing to $23,600 and even reaching as high as $24,000 for a few moments. The S&P 500 also rallied, experiencing over a 3% leg up in the last week. Unfortunately, despite this brief moment of respite for financial markets, the prevailing narrative around the world has remained grimmer, with global unrest appearing to be the apt theme of choice for the week.
Shown below is a list of nations with inflation rates over 15%. While many of these countries would not be considered major global players, the economic hardship these nations are undergoing is nothing to scoff at.
Even outside of this arbitary 15% cutoff, many countries have been roiled by protests as the cost of basic goods inches upwards, out of the reach of many. Below is a short but non-comprehensive list of nations that have protested rising prices, just this year alone:
Ecuador: 4.2% YoY
Rising prices send the entire country into a state of unrest
Lebanon: 211% YoY
“'Imagine all the people who can’t afford to come to these protests because they can’t afford the gas to get here'
Sri Lanka: 54.6% YoY
Albania: 7.4% YoY
Thousands march in Tirana as food and fuel spikes, and purchasing power falls amid a strengthening US Dollar
Ghana: 29.8%
Ghana seeks help from IMF amid rising fuel prices
With the macro environment not expected to improve in the near-term, concerns remain high with a strong US dollar causing discomfort around the world. Even locally, a strong dollar has put moderate strain on US competitiveness for exporting and more broadly, the prevalence of the petrodollar puts greater pressure on economies whose flagging currencies are now having to interact with one of the only fiat currencies that have been appreciating in order to import fuel. Hopefully in the coming months things mediate, but only time will tell how it will all play out.
In Other News
Tesla sells majority of its Bitcoin holdings in order to shore up their balance sheet. Approximately 75% of the BTC was sold for over $900M.
The European Central Bank hiked rates for the first time in 11 years. This 50 basis point hike not only signals a change of course in their policy, but also it means the key interest rate is back at zero and no longer negative.
Despite a resolution seeming close last Friday, circumstances became dire this week in the Henan province as the military sent in tanks to stop demonstrators attempting to receive their deposits. Given that the banks began releasing some funds starting last Friday, this sharp escalation brings their solvency into question.
Crypto broker Genesis files a $1.2 Billion claim against 3AC, with their parent company, Digital Currency Group, assuming the liabilities in the case.
Mining Metrics
Bitcoin Price: ~$23,600
Hashrate (amount of computing power used by the Bitcoin network): 189EH/s
Hashprice (expected value of 1 TH/s of mining power per day): ~$0.104
ASIC Prices (the computing machines used to mine BTC): $38.97/TH
Bitcoin mining metrics meaningfully improved this past week as many market participants took their machines offline. For those that have remained profitable, this decline in hashrate coupled with an improvement in the price of Bitcoin has led to a marked rise in profitability. The upcoming difficulty adjustment (an automated function that adjusts the difficulty to find a block upwards or downwards to remain at an average of 10 minutes) is estimated to be around -5%, the largest adjustment down since the China ban took place midway in the middle of 2021. If all else stays constant, this adjustment will have a direct impact on mining profitability over the next two weeks.
For those that are able to keep their machines online, this respite is welcomed despite the broader macro trend of rising energy prices looming overhead. Using publicly available data, we can see that the YoY increase in industrial energy prices throughout the U.S. is ~16%. Ignoring movements in network hashrate or bitcoin price, a rise in this input cost directly impacts miner profitability. However, this increase in industrial rates has not been uniform. When selecting the site of their mining operation, an operator must remain cognizant of a variety of factors ranging from the obvious (what ASIC’s they will buy or cooling methods for hardware) to the less obvious (what energy prices in their local community may do in the near to mid-term). In many instances, operators will accept the latter as something that is out of their hands to keep track of, but the following chart shows that a concerted effort on this front is at least wortwhile:
To conclude, even though the bitcoin mining equation is fairly simple - (your computing power/total network computing power) * BTC reward, the ways to optimize at the margins are deeply nuanced and difficult to master.