Bitcoin, as an asset, has exceeded expectations in the year 2020. Not only did it undergo its much-anticipated halving, creating a negative supply shock during a highly inflationary period, but it also survived a brutal crash. While oil futures are trying to recover from the negative RoI territory, the BTC Futures market has gained sufficient traction and is seeing increasing OI. Suffice to say, the Bitcoin market has gained a lot of traction and is seeing increased adoption.
“Bitcoin adoption” has a skewed meaning as the phrase applies only to the “speculative nature” of the asset, ie. the price. The launch of Bitcoin Futures, Options, or the n-number of other price-based products is considered adoption. “Mining adoption” is seldom giving a second thought, except by miners. Although investors in 2020 have begun sniffing out BTC as a hedge, there has not been a reliable hedge for BTC miners and their operations as a whole.
“Hashrate” is considered to be the lifeline of the Bitcoin network. However, miners suffer a nasty capitulation each time the price crashes and OpEx exceeds their break-even limit. During the recent halving, the average hashrate dropped by 40% from 136 million TH/s to 81 million TH/s. This drop represented miners turning off their rigs since the operation wasn’t profitable.
As far as halvings go, it is a coded event and is a quadrennial event. Hence, it gives miners time to prepare ahead of the drop in rewards. However, unforeseen events like Black Thursday are economically taxing for miners. To make it worse, these miners had nothing to rely on during times like these. For such an important industry to not have its participants a safety net is surprising.
For the longest time, building a hedge for miners was an interesting intellectual parlor game as trying to figure out who would take the other side of the trade was a challenge. Discussing this on the Hashr8 podcast, Ethan Vera, Head of Finance at Luxor, had…