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Following an attack, Aave has temporarily suspended markets for assets with low liquidity and high volatility. Elsewhere, the Bahamian government has launched a criminal investigation into FTX.
Today, we take a look at a volatility-based indicator for BTC and our Research team examines how electrical costs influence the behavior of BTC miners.
This is the Delphi Daily. Let’s dive in.
Bitcoin miners’ behavior will always be linked to their operating costs. More specifically, the electrical cost associated with BTC mining is the primary driver behind miners’ base expenses and profitability.
Interestingly enough, the electrical expenditure to mine 1 BTC has historically represented a dynamic price floor for Bitcoin since its inception.
In fact, Bitcoin’s price has only matched the raw electrical cost of production (denoted by the red-dotted line in the charts above and below) 5 times over the past 5 years: December 2018, March 2020, June 2020, June 2022, and most recently this November.
Throughout the month of October, BTC’s price started to inch back down toward this historic floor price.
Furthermore, with the recent sell-off caused by FTX contagion, BTC actually traded beneath its current electrical cost of ~$17k (estimated based on research from Capriole Investments Limited).
Historically speaking, this rarely occurs, and hasn’t happened since the COVID capitulation in March 2020. To put it simply, BTC miners are now footing an electrical bill that exceeds the income generated from mining operations.
But that’s just raw electrical costs. When you layer in the other expense inputs such as hardware, bandwidth, wages, rent, insurance, etc., it is easy to visualize just how much pressure miners are currently under.
The green-dotted lines represent the estimated total cost of production, or where BTC’s price needs to be in order to be profitable. This estimate currently sits at ~$28k, with BTC trading beneath it since the beginning of May.
For more on this, Delphi members can read our Delphi Pro report here.
Upcoming Events in December
December fresh alpha, enjoy
On Frequent Batch Auctions
1/ Frequent batch auctions (FBAs) are a perfect nerd-snipe. They almost don’t exist irl, yet smart people can argue for hours if they can solve hft.
In this 🧵, I’ll explain why
1. the original FBA argument is likely flawed
2. their application in crypto is also problematic– Al N (@0x94305)