Konza Capital Newsletter #6
A Macro Picture Beginning to Take Shape
Another strong week in the markets leads to US equities rallying for the second week in a row. The rally in equities this week came off the back of a 75 bps rate hike by the Fed, as the market began to anticipate a more dovish tilt on the horizon.
The United States has officially entered into the textbook definition of a recession as GDP contracted by another 0.9% in Q2, after a fall of 1.6% in Q1. While these figures certainly are nothing to scoff at, the more interesting story at this time is the battle of conflicting data as over 60% of the American public thinks we are already in a recession despite the White House’s assertions to the contrary. With a historically high inflation of 9.1% and decreased consumer spending supporting the former and a historically low unemployment rate of 3.6% supporting the latter, both sides of the table have ample grounds to believe their assertions. All eyes will be on Jackson Hole as the Fed will discuss policy and the health of economy during their annual retreat.
The YoY increase in EU household energy prices as of March 2022 is 41%. There is little respite to be had in the EU as Europe has seen natural gas skyrocket by as much as 700%. With inflation data continuing to print higher than expected, the ECB is expected to continue hiking into the winter, despite slowing demand and tight conditions for households throughout.
In Other News
The Federal Reserve hiked rates by 75 bps and the markets reacted positively to the news, interpreting Jerome Powell’s comments as dovish.
Congress approves a bill to assist computer chip manufacturing and adds a new crypto advisory role that will assist the administration.
Nord Stream 1 is now apparently running at 20% capacity as Russia continues to reduce the natural gas supplied to Europe. The average energy bill in the UK is expected to reach 500 pounds per month this winter.
Mining Metrics
Bitcoin Price: ~$23,900
Hashrate (amount of computing power used by the Bitcoin network): 201EH/s
Hashprice (expected value of 1 TH/s of mining power per day): ~$0.111
ASIC Prices (the computing machines used to mine BTC): $36.58/TH
Markets reacted positively off of the back of the Fed rate hike, with Bitcoin and Ethereum both experiencing a strong surge. Conditions for miners have continued to improve with hashprice breaking $.11 and ASIC prices seeming to approach a local bottom.
Off the back of a slightly slower news week, The Konza Capital team spent the week in Miami, Florida attending North Americas largest mining conference. The team dove deep into the innovations going on within the ecosystem and continued to refine their expectations of industry movements. Without further ado, here are a few of our takeaways from the conference:
On the Industry:
Our research in the last year was corroborated by the remarkable presence of immersion mining systems that made their debuts at Mining Disrupt. These are systems used in traditional high-performance computing where computers are effectively bathed in a fluid that allows them to keep temperatures stable while maintaining a high level of performance. Up until recently, the economic viability of immersion systems in bitcoin mining was questionable at best. However it appears that competition is finally heating up on this front, with a multitude of approaches debuting their offerings to the masses.
Despite Bitcoin’s precipitous drop, enthusiasm in the industry remains strong. As far as market downturns go, the morale of the mining industry remains fairly high despite broad setbacks across the board.
Policy efforts at the state level across many fronts appear to be moving in a favorable direction but securing progress at a federal level will also be vital. The Texas Blockchain Council has begun accelerating their efforts to do exactly this.
On the Market:
ASIC prices have likely begun to find a local bottom as Bitcoin price movements have moderated over the last few weeks. The downtrend in ASIC prices is likely to slow in the near term, but a further leg down a couple of months from now is not out of the question if Bitcoin price does not rebound soon.
Hashrate growth is not likely to accelerate in the near term but as many data centers continue to move forward on construction projects they began before the downturn, it is likely that any favorable and protracted move upward in price could lead to sharp rises in network hashrate as ASIC’s would leave their warehouses and get plugged in.
Distressed asset opportunities are likely to be pervasive if miner margins do not improve in the coming months.
To wrap things up, our team is grateful to have spent time conversing with many of the industry’s thought leaders this week. We had the opportunity to challenge many of our core theses with the goal of improving our product offering for our investors. At Konza, it is our objective shed light on the best ideas and make good on a favorite quote of mine:
“Beliefs are hypotheses to be tested, not treasures to be protected.” - Philip Tetlock
Until next week,
Artem