Konza Newsletter #10
A historic decision in the U.S. and a looming food crisis set the stage for the last leg of 2022
The Preamble Month - A Reflection
As we approach the final week of August and begin digesting the implications of another heavy news week across the world, the final leg of 2022 is looking increasingly tenuous on a global scale. The summer doldrums we discussed previously appear to be in full swing as the last few weeks have been relatively stable for traditional markets, with the S&P 500 up around 1.5% month to date. Bitcoin on the other hand has corrected around 7.0% this month off the back of some irrational exuberance in response to the recent Fed hike. Next, zooming out from financial markets will show that there are many stories that remain untold, both at home and abroad.
Domestically, an unprecedented decision to forgive between $10,000 to $20,000 of student loans is being received with mixed reviews as Democrats attempt to reconcile their decision with Republicans who see this decision as little more than an attempt to gain votes right before the midterms.
Moving a bit further north to our Canadian friends, individuals are seeing their rights infringed upon in unique ways, as Ontario-based crypto exchanges are placing buy a $30,000 CAD annual buy limit on all crypto assets that are not Bitcoin, Bitcoin Cash, Ethereum, or Litecoin. What I wouldn’t give to be a fly on the wall for the conversation that led to them deciding that these specific assets should be exempt from the buy limit.
Moving our focus now to large swaths of the developing world, a disturbing picture is taking shape. Experts are expecting a global food crisis for millions throughout the world as soaring energy prices, falling agricultural output in Europe due to drought, and Russia’s war on Ukraine hammer crop yields and raise import costs. As we mentioned previously, energy prices remain dangerously elevated. Couple this with reduced crop yields in Europe and the world’s largest (Russia) and fifth largest (Ukraine) exporters of wheat embroiled in war, and we are poised for some calamitous times ahead.
With so many complex threads interweaving themselves around the world, the events of this past month appear to be a preamble for the months to come. For the first time in decades, our society is reversing course on globalization, as the ramifications of a deeply intertwined global economy wreak havoc on developed and developing nations alike. While we do not have any degree of certainty regarding how things will unfold, it is clear that the topics we have recently discussed could potentially set the stage for an entirely new series of global paradigms. As unpleasant as it may be, it is important to consider that moving supply chains closer to home could put further inflationary pressures on global economies for years to come as efficiency at all costs becomes caveated with efficiency + security at all costs.
In Other News
Our favorite topic to revisit becomes interesting once again as the USD not only achieves parity with the EURO but also surpasses it in value.
However, you may want to wait another month or two to visit Europe with those dollars as Europe is apparently in its worst drought in 500 years.
You may have noticed that your domestic travel was more compelling as Hopper predicted a 25% drop in airfare this month due to peak season for flights concluding.
Meanwhile, in crypto land, Afghanistan has reportedly shut down 16 crypto exchanges and began arresting staff at the firms citing problems and scams as their motivation. A quick spot check of this line of reasoning tells us that this is not the case since in June the Taliban shut down Forex trading as well, likely in an attempt to prevent citizens from exiting the local currency.
And in better news, Coinbase recently released a report on the state of the Bitcoin Lightning Network, showing that the payments vision for Bitcoin is still alive and well, albeit evolving at a slower pace than many would like.
Mining Metrics
Bitcoin Price: ~$21,500
Hashrate (amount of computing power used by the Bitcoin network): 219EH/s
Hashprice (expected value of 1 TH/s of mining power per day): ~$0.097
ASIC Prices (the computing machines used to mine BTC): $34.20/TH
Bitcoin miners had their roughest week of the month as the asset dropped moderately and hashprice descended below 10c for the first time in August. ASIC prices have continued to stay at what we believe is a local bottom while the average network hashrate increased approximately 10%. I suspect that much of this hashrate coming online can be attributed to Texas as temperatures dipped slightly and uptimes marginally improved. Additionally, new energizations across Texas are also likely culprits for the recent increases.
Speaking of hashrate, since we have no new narratives to tout this week as markets stayed relatively steady, let’s take a look at a topic we scratched the surface on recently but had not yet taken a deep dive on: hashrate guidance.
From late 2020 until Q1 2022, public markets responded resoundingly well to the hashrate guidance offered by public miners. Hindsight has since shown us that a majority of these estimates were at best overly optimistic and in some fringe cases potentially predatory as some miners took advantage of the ability to pump their stock and then issue dilutive equity to raise capital for operations. After viewing the aftermath of Q2 earnings from these public miners, we may be reaching the end of this era of using guidance to pump prices as the bear market blues force us to look at the facts and discard unwarranted optimism.
2022 was heralded as a year in which hashrate expansion would be incredible for the network, with expectations for year-end EH to top out between 280-320. Extrapolating our current network growth with the data we presently have leads us to conclude that we will not be anywhere close to this figure by year-end, with 240 to 250 EH being a far more likely peak target. So, to wrap up our reflection on mining metrics this week let’s just examine a few major miners whose exuberance at the start of the year has since been dramatically tempered:
* Current estimate pertains to expected EH (1 exahash equals 1 million terahash) by year-end 2022. Previous estimates were established at various times throughout the year.
While this paints a nasty picture for many miners, it is also important to note that a number of market participants have continued to maintain hashrate guidance (Marathon) and one participant even increased guidance (Iris Energy), so the outcomes are by no means identical across the board.
Until next week,
Artem