BT Daily News: Bitcoin surge brings new hope to miners after months of slumping profits

1. Bitcoin surge brings new hope to miners after months of slumping profits

The recent surge in the price of Bitcoin [BTC] has caused a significant shift in mining activity on the BTC network. Pseudonymous CryptoQuant analyst Onchained found that the 68% jump in the year-to-date value of the king coin has resulted in an increase in fees per transaction due to the increased demand for block space.

Unchained noted that the rally in BTC’s price since the year began has led to high network activity on the Bitcoin blockchain. As a result, there has been a surge in demand for block space on the network. And users have had to attach a fee to incentivize miners to prioritize their transactions over others in the mempool, leading to a rise in total miners’ fees.

On why the demand for block space on the Bitcoin network has rallied significantly recently, the analyst noted:

“It appears that Bitcoin is being withdrawn from exchanges at a rapid pace, which could be the primary reason for the rise in transaction fees. This is likely due to holders who are seeking to keep their Bitcoin safe outside of exchanges. The banking crisis in the USA has led to an increase in the number of people withdrawing their Bitcoins from exchanges. As more people lose faith in the traditional banking system, they are turning to cryptocurrencies as a means of securing their assets.”

Another analyst Achraf Elghemri assessed miners’ revenue on the Bitcoin network and found that increased transaction fees on the network caused by the uptick in block space demand have resulted in higher returns for miners.

Elghemri considered BTC’s Puell Multiple Index and found that the total amount of BTC earned by miners to process transactions on the network has grown “as a result of collecting the gains of the rising market and covering the costs of mining.”

According to data from Glassnode, total miners’ revenue rallied to a high of 1,182 BTC on 23 March, the highest the chain has seen in the last three months.

BTC holders have a good reason to smile
Since the year began, the 68% jump in BTC’s value has put many of its holders in profit – the most they have seen in the last year.

Data from Santiment showed the coin’s MVRV ratio at 43.17%. This indicated that if all BTC holders sell their coins at the current market price, they can expect to generate an average profit of two times their initial investment.

Further, for most of the year, BTC’s Network Profit/Loss ratio metric has returned only positive values. In the wake of Silicon Valley Bank’s collapse, this metric suffered a significant dip as “weak hands” exited the market due to the decline in BTC’s value.

This, however, made way for “new money,” which re-entered the market and drove up the coin’s price with the required liquidity.

2. Glassnode Explains How Bitcoin Mining Is In A Remarkable Equilibrium

Data from Glassnode shows Bitcoin mining has remained in an almost perfect equilibrium over the history of BTC, thanks to the difficulty feature.

Bitcoin Miners Have Spent Almost Equal Number Of Days In Profit As They Have In Loss
According to a new report published by the on-chain analytics firm Glassnode, BTC miners have been enjoying profits recently. To know whether Bitcoin miners are making profits or losses, the difference between their revenue and expenses is taken.

The firm defines the “mining revenue” as the sum of the total value of coins that miners are issuing (that is, the BTC they are getting through mining block rewards) and the transaction fees that they are receiving for handling transfers.

As for expenses incurred by these chain validators, Glassnode has assumed that the “mining difficulty” metric encapsulates info about all the mining-related metrics in one, and thus, can be used as a reliable way to calculate their costs.

The mining difficulty here refers to a feature of the Bitcoin blockchain that controls how hard miners currently find it to mine on the network. The reason this concept exists is that the BTC network aims to keep the production rate of BTC constant, no matter how much computing power the miners have connected to the network.

When, for instance, miners connect more mining machines to the network, the difficulty gets raised in the next periodic adjustment, so miners are unable to use this extra power for producing a higher amount of Bitcoin than usual.

Such a feature as the difficulty existing on the network has wide-reaching consequences for the BTC economy. As Glassnode suggests, “the net result is that mining is a hyper-competitive industry, where the cost of production for BTC is constantly approaching the break-even price for the average miner over the long-term.”

Now, to more easily see what impact the difficulty has had on the network, the firm has charted the number of profitable and unprofitable days that miners have experienced throughout the history of the asset.

Here, as mentioned before, the days are separated into profitable and unprofitable using whether the mining revenue was more or less than the cost of production (calculated using a model based on the difficulty) on any given day.

Interestingly, so far in the entire lifetime of Bitcoin, the average miner has spent 2,184 days enjoying profits, while they have spent 2,447 days in losses. This means that 47% of all days have been profitable, meaning that there is a pretty even split between profitable and unprofitable days.

“According to economic theory, a perfect market is one where supply and demand reach equilibrium, and the price of the asset approaches the point of cost (production price),” explains Glassnode. “Given how close these numbers are to a 50:50 condition, one could argue that the difficulty adjustment has done a remarkable job of targeting just such an equilibrium.”

3. Margot PAZE on mitigating climate change, the progressive and bitcoin’s representation problem

As Bitcoiners, we often repeat the mantra “Bitcoin fixes this” and truly, it does solve many problems. The issue with this phrase is not whether Bitcoin fixes things, but asking, “for whom?” If we find ourselves in an echo chamber, then we’re gatekeeping the benefits of Bitcoin and what it can do for everyone.

Margot Paez is a brilliant environmentalist and an outspoken Bitcoiner. Paez received master’s degrees in physics and ethnomusicology and is currently finishing a PhD in civil engineering at the Georgia Institute of Technology. She has proven to be one of the MVPs in Bitcoin due to her extensive research on the intersection of Bitcoin mining and energy usage. She continues to generously give her time and resources to provide an intricate framework for influencing bipartisan Bitcoin policy.

Paez delivers a unique perspective that is unmatched in the Bitcoin space. In October 2022, Paez spoke on a panel appropriately titled, “Can Bitcoin Help Save The Planet?” at the U.K. Bitcoin Conference in Scotland. Not only did she contribute jaw-dropping facts related to Bitcoin mining and the environment, but she did so in a way that was eloquent and accessible. She is a passionate Bitcoiner in a community where various subcultures can, at times, obscure important truths. Paez does an incredible job at helping to make Bitcoin for everyone.

She and I had the opportunity to discuss a few hot topics, such as Bitcoin mining and energy consumption, whether Bitcoin is truly as bad as many progressives think it is and whether or not there is a male-dominated skew in Bitcoin.

How did you first learn about Bitcoin and what specifically drew you to it?

I first learned about Bitcoin in the early 2010’. It was either a Slashdot post or when WikiLeaks decided to use Bitcoin after (Julian) Assange was shut out of the banking system. There were Bitcoiners at the “Audit The Fed” rally that happened at Occupy Los Angeles. There were two things from that event that I remember. First, someone had a Bitcoin sticker on their belongings, which I photographed, and second, people burning dollar bills, which I also filmed.

Occupy brought people from many different backgrounds together through their mutual hatred of the banks. Sometime before 2014, I actually tried mining bitcoin, but really didn't get the point and thought it was just another random, open-source project. I was interested in hardware and mesh networks at the time and didn't think there was much more to money than some people not having enough of it.

This all changed in 2018 when I saw content creators being deplatformed. Some were creators who I was sympathetic toward and others were people I did not like at all. I learned quickly that to be able to accept payments online, you really had only two options: PayPal or Stripe. If you lost access to either of these, you could be completely shut out of the payment-processing network. Once you are on the bad list, you stay there for about five years, and credit card companies manage these lists. In response to this, I built a content creator platform that incorporated BTCPay Server. This forced me to really understand how to send and receive money using bitcoin and that is really when I started to take Bitcoin seriously. It was a long journey, but part of it was that I had no foundation in economics or monetary history to build from early on. I was just a naive computer nerd who loved the freedom and openness of the internet. Bitcoin, to me, helps keep the internet free.

As an environmentalist, what is your perspective on how Bitcoin, specifically bitcoin mining, positively or negatively affects the environment?

Bitcoin is a technology. It can do good things, it can do bad things. What we decide to do with it is what determines its positive or negative effects on the planet and humanity. Some miners chose to grow very fast without considering their environmental impact. Thankfully, the way proof-of-work functions is that it has a built-in mechanism to keep this high-time preference in check. So, while we have seen miners make poor choices in the past, I think that miners are starting to realize that they will perish if they grow too fast. As a result, there is hope that Bitcoin can have a positive impact on the environment. Our existing monetary and economic system does not work this way. The existing system only prioritizes the present over the future. It promotes growing fast and maximizing profits at all costs. There's no mechanism to wipe out the players that did not think long term or who took on too much risk. More importantly, with proof of work, there is no bailout for those miners that fail.

Due to the fact that bitcoin miners are forced to find the cheapest electricity, feel a downward pressure due to the difficulty adjustment and the near-perfect competition market dynamics of mining, they are driven toward waste energy. This turns out to be very helpful for the environment because a lot of these energy sources are bio-methane like in landfills, livestock waste and so on. Anthropogenic methane is the number-two source of global warming, second only to carbon dioxide. If we are trying to prevent tipping points, then it makes sense that we would want to try to buy ourselves some time and reduce the warming potential over the short term. Bitcoin miners are highly flexible and location agnostic. They can monetize the early phase of a methane capture system that takes the methane gas and converts it to electricity.

In a market economy, referring to solar and wind power generators that have to compete with each other when they produce power, how are they going to survive if the price of their product is driven down to zero or even negative in some markets? Bitcoin miners can help sustain these renewable power generators as a secondary source of revenue that boosts their return on investment. Some companies are already trying to do this. The issue is educating the energy industry on the use cases of bitcoin mining and that takes time. The anti-bitcoin political environment and the cryptocurrency scams like FTX make potential partners wary of engaging with miners. This is unfortunate because this is a missed opportunity for meeting our decarbonization goals.

Electrical grids that are transitioning from conventional thermal power generators like coal and natural gas to renewable energy sources like solar and wind need demand-side flexibility. Bitcoin miners are useful and can help stabilize the grid so that more wind and solar can come online.

How do you typically respond to those who are dismissive of Bitcoin? How do you concisely present the case for Bitcoin from a progressive point of view?

I have had very little success in my own circle of friends. They are all too dogmatic in their beliefs about the economic system to think that bitcoin could be of any good to them. In fact, I still hide all my Bitcoin stickers and Bitcoin Magazine copies when a non-Bitcoin friend comes over. I'm probably a coward, but I just don't have that many friends in real life, I can't afford to lose them over Bitcoin. The best argument I can give is to people who are not as emotionally engaged with our economic problems and are willing to listen to a differing opinion: Bitcoin has social value to anyone who has ever found themselves locked out of the banking system or had their bank deposits frozen and stolen from them. It has the ability to run on wasted energy, meaning it can help us mitigate methane emissions and buy us time. If you don't like what you see, then you should at least know that, fundamentally, Bitcoin has no ideology and anyone can participate. The more individuals using bitcoin who care about climate change and the environment means the likelihood that Bitcoin will do good for the climate and the planet overall increases. Bitcoin is for anyone, Bitcoin is for enemies.