⛏️ Bitmain & Genesis Mining Go Head to Head For Drama of the Year Award
In other news, the biggest hash rate jump in history...
Hashr8 Difficulty Adjustment delivers:
Hash rate futures recorded a drop as rig delays from Bitmain look increasingly likely.
Bitcoin difficulty increased by 14.95% despite BTC price declining ~3%.
Micree Zhan shut a Shenzhen subsidiary of Bitmain which is responsible for mining rig manufacturing and delivery.
Genesis Mining caught in a German government scandal
Grayscale has purchased more Bitcoin than miners have issued since the halving
📈 Bitcoin Market Digest - Hash Rate Futures Price In Potential Rig Delays
Bitcoin has declined ~3% since the start of difficulty epoch #314 (the difficulty adjustment on the 4th of June). With price playing an important role in miner margins, the difficulty jump highlights that the previous two difficulty adjustments made it possible for many miners to turn their rigs back online.
The CME June futures contract continues to trade in contango to spot price.
Bitcoin Q3 hash rate futures remain relatively unchanged since the last newsletter release but dropped as low as 16.9. The drop may have been the market pricing in potential rig delays from Bitmain as detailed below.
Difficulty Epoch #314 Records Biggest Jump In Hash Rate
Bitcoin mining difficulty recently increased by 14.95%, the largest difficulty jump since January 2018. Data from ARK Invest highlights that this difficulty adjustment represents the largest jump in hash rate over a difficulty epoch. Although there have been larger increases in difficulty, these increases occurred at lower hash rate levels and corresponded to smaller increases in absolute hash rate deployed.
The decline in difficulty since the halving will have played a significant role in incentivising miners to deploy more hash rate. Difficulty declined by 14.7% in the two adjustments after halving. Miners who would have been pushed below their breakeven levels immediately post-halving would have found it once again feasible to deploy their rigs.
MicroBT Poised to Capture More Bitmain Market Share
Hollywood is in the business of creating suspense but Bitmain is giving them a run for their money. Previously ousted co-founder Micree Zhan has returned to the Beijing helm and has reportedly shut down a key Shenzhen subsidiary for delivering mining rigs.
Micree was removed from Bitmain in October 2019 while on a trip to an AI conference in Shenzhen. Jihan Wu largely coordinated the removal of Zhan as he returned to Bitmain.
Zhan returned to the company early this month after following legal procedures to be reinstated as the legal representative of Bitmain. A physical confrontation escalated between Zhan and Bitmain executives when Zhan went to reclaim his licence and status as the legal representative of Bitmain.
Chinese media has reported this week that he has shut a Shenzhen Bitmain subsidiary which is responsible for manufacturing and packaging the Bitcoin miners. It is believed that Bitmain’s Malaysia facility is operating at full capacity but customers are becoming aware of delays from the Shenzhen facility.
Bitmain’s troubles are mounting at a time when MicroBT is strongly positioned to capture their customers. Bitriver CEO Igor Runets, the head of a Russian colocation mining service, told CoinDesk that many of their clients have switched to purchasing Whatsminer rigs from MicroBT.
Genesis Mining Caught Up in Potential German Government Scandal
Bitmain is not the only mining company making the spotlight. Genesis Mining is caught up in what may turn out to be a huge political scandal in Germany.
A New-York based startup Augustus Intelligence has been under scrutiny for the role a young German parliamentarian plays on the team. Philipp Amthor, an up and coming member of the Christian Democrat (CDU) party, faces sanctions for potentially wielding his political influence for financial gain.
Amthor became a director in Augustus Intelligence shortly after introducing the German Economy Minister to the startup. High expectations for Augustus Intelligence have failed to materialize with no clear product offered by the startup. Former investors and employees in Augustus Intelligence have accused the company of misleading them.
In August 2019, Amthor was cc’ed in an email conversation where a questionable deal was discussed between Genesis Mining CEO Marco Streng and Augustus Intelligence executives. Streng had issues with $300 million worth of mining equipment in China and sought the assistance of Augustus Intelligence executives to retrieve the equipment. In the email correspondence, Amthor was exposed to the executives discussing a bribe to secure the equipment.
In return, the executives wished to take over some of the operations of Genesis Mining for 3 years. The aim was to record a revenue between $30-100 million per annum to give the impression of company growth and a working product. It is unknown whether the deal ever went through but the involvement of Phillip Amthor is receiving high amounts of German press.
Grayscale Demand Gobbles New Bitcoin Supply
Since the halving, Grayscale has purchased more Bitcoin than miners have issued. From May 11th to May 28th, Grayscale purchased 18,910 bitcoin compared to 12,337 bitcoin issued by miners.
Grayscale’s buying activities back the value of the Grayscale Bitcoin Trust (GBTC). GBTC is a close-ended fund investment product that gives accredited investors price exposure to Bitcoin.
According to the latest Grayscale quarterly report, GBTC received $388 million of capital inflows in Q1 2020 with 88% of these funds coming from institutional investors. Purchasing activity in Q1 represented a significant claim on Bitcoin issuance but their buying since the halving has exceeded issuance.
During the week, Singapore-based hedge fund Three Arrows Capital revealed that they hold 6.26% of the GBTC. GBTC has historically traded at a premium to the Bitcoin within the fund indicating that Three Arrows Capital partners are bullish on inflows further increasing this premium.
GBTC currently trades at a 23% premium to the Bitcoin within the fund. This premium increased to over 132% during 2017. Three Arrows Capital are positioning themselves to capitalize if a similar premium returns.
Three Arrows Capital co-founder Su Zhu told The Block that the firm is “bullish on GBTC demand”. A recent report from brokerage Charles Schwab showed that the GBTC product was among the largest holdings for millennials, a generation which will receive a huge wealth transfer through inheritances over coming decades.
Also on the HASHR8 Radar:
The Human Rights Foundation has announced the launch of a fund to support Bitcoin development. Chris Belcher was the first awardee of the scheme. Chris is currently working on a Bitcoin privacy technology called “CoinSwap”. Chris previously invented JoinMarket and Electrum Personal Server.
A new North American Bitcoin Mining pool will enter the mix. Laurentia Pool has set up a website for what will be a North American based Bitcoin mining pool. The operation will be spearheaded by Bitcoin OG Con Kolivas. Kolivas has been active in the Bitcoin community since the early years and was the creator behind Bitcoin mining software CGMiner. One project listed on the Laurentia Pool website is CKPool.org. According to MiningPoolStats, CKPool has roughly 4.8 PH mining Bitcoin. At current hash rate estimates, this would represent roughly 0.00000004% of Bitcoin hash rate.
Ethereum… But on Lightning. A smart contract project called Etleneum is starting on the Lightning Network. The project is in its early phases but some contracts have already been coded on the testnet.
America’s Structural Advantage with Harry Sudock - Griid Director of Strategy Harry Sudock joins the pod to detail the Griid approach to building efficient mining operations in North America. Transaction fee swaps are also discussed and Harry shares how he helped the BitOoda team to design these products.
Securing Bitcoin’s Blockchain with Wang Chun - F2Pool proprietor Wang Chun shares his experience being in the Bitcoin space since 2011. Chun also explains why Bitcoin miners should consider more than fees when choosing where to direct their hash rate.
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