In my last article about the current situation in the miner market, we took a deep dive into the correlation between hashrate and price. We compared the current market conditions to the situation in 2014/2015. We also speculated on where Litecoin and Bitcoin will be in 2019 and beyond.
In the second part, we will discuss DASH. In the third part, we will cover Ethereum (ETH).
We will skip Bitcoin Cash (BCH) for two reasons: first, due to the shared algorithm with Bitcoin, which was addressed in the previous part. Second, BCH network size is not significant enough in relation to be of interest.
We might discuss Monero (XMR) later. The hypothesis is, that the rejection of ASIC’s and subsequent hard fork shrunk the hashrate. Price followed.
The next biggest networks of interest are ZCash (ZEC) and Decred (DCR), which might warrant an addendum. Same applies to . If the readers are happy, I will continue in this vein to cover these three networks.
Testing the axiom
In the last article, I have tried to test the axiom “hashrate follows price”. Instead, we developed a hypothesis that hashrate follows price at the peak of the bear market and that price follows hashrate at the beginning of the bull market. Sometimes, they move in tandem.
DASH, previously Xcoin and then Darkcoin, has had a fair share of controversies. On the other hand, DASH’s market size is large enough to warrant the production of dedicated hardware. This implies the manufacturers’ confidence that the network is stable enough to support a multi-million research and production investment.
NB: DASH has no halvings, instead the block reward goes down smoothly, at the rate of 1/14th every year.
DASH was released just before the 2014/2015 bear market. At the time, X11 was a GPU mineable algorithm (or to be more precise, a series of 11 algorithms). The coin had a lot of news coverage, a glorious pump and dump and was hailed a Bitcoin killer. This was closely mirrored by the hashrate, which topped out precisely at the top of the price pump that hit 16$ and 167 gigahash/s (GH/s). The price bottomed out at $1 (a 94% retracement) six months later. It then ranged between $2 to $7 dollars for two years. The hashrate formed a range between 60 and 120 GH/s, a neat range just like in the Litecoin’s case. The absolute bottom in hashrate was 52 GH/s a year after the price hit the top.
In this case, we cannot say hashrate followed price or vice versa. They moved in tandem during the bull market and then also inside the giant two year range.
In June 2016, we can observe a breakout in hashrate, when it broke 200 GH/s for the first time in history. Again, the reason becomes obvious three months later, with the release of the first X11 ASIC, which is called Baikal Mini. Surprisingly, Mini’s (and their brothers QuadMinis, A900’s and Cubes) are not obsolete. This is thanks to their ability to also mine X13, X14, X15, Quark and Qubit algorithms as well as X11.
The hashrate breakout was followed by the price of DASH retesting $16 in August 2016. It hovered above $7 until January 2017, when it underwent its biggest bull run in history, all the way to $1600 in December 2017. The price rise began six months before the new generation of ASICs came out— iBeLink DMG11 (July 2017) and Antminer D3 (August 2017). D3 was the industry standard until recently. The situation with X11 miners is a bit more complicated than in previous cases. Nevertheless we can still safely state that price followed hashrate at the beginning of the bull market. The ramp up took longer, was more controlled and was even stronger than in case of Litecoin.
Common sense dictates that hashrate went parabolic during 2016/2017 (the increase from 200GH/s to 2.6PH/s is 130 000%). Miners were buying Baikal ASICs as fast as the machines came online. I remember one of the Minis going for as much as 5000$ before D3 came out. Meanwhile, Bitmain was working hard to release the D3, which came out in numbers never seen before. Hundreds of thousands of units were sold. It was possible to see batch sizes in the website code before they became obfuscated. I remember counting up to 100 000 units in the first six months of sales before the numbers became hidden. Despite the price going parabolic, miners were hard-pressed to ROI because Bitmain was selling more machines in massive numbers. I know. I was one of them.
Once again, hashrate topped out together with price in December 2017 at 2.6PH/s. Afterwards it proceeded to follow the 2018 bear market and bottomed out at 1.4PH/s in late August 2018. Then, despite falling prices, hashrate began to climb in early November. Again, reason becomes obvious later, when the manufacturer released their new more efficient machine, D5, several months later. The hashrate proceeded to ramp up to 3.2PH/s. This would be considered a breakout, but instead it cratered. Hashrate licked the zone below the bottom of the 2018 range (which we defined as 1.4PH/s). At the time of writing, we are back at 1.7PH/s.
After considering the data, it seems like a desperate move. Bitmain attempted to offset their huge losses this year and released a new miner to resellers first, in unfavorable market conditions. At the time of writing, the only X11 miner that can be bought on the official website is still the D3. All yours for forty bucks.
The scenario we are interested in, hashrate following price at the trough of the bear market, might have happened. It seems we have found our hashrate range. From a technical analysis perspective, if we break down below $60, the entire zone between $60 and $16 is untested territory, which lacks support. In traditional markets, we would call it a gap. In short, DASH was not in a good spot and needed to have its version of plunge protection team step in.
Let’s put the profitability of X11 miners this way: the newest D3 is barely profitable at 3 c/kWh, whereas the D5 is still profitable at 16 c/kWh. However, this comparison ignores the glaring CAPEX difference. D3 costs $40 and D5 sells for $1300. Unless Bitmain plans to force the entire X11 miner community to switch over to the D5, newer miners will be dumping on the older ones, creating a giant divergence. This will cause a fall in hashrate and a drop in price as the less competitive D3 miners drop out. In short, Bitmain has created selling pressure on the DASH market in very unfavorable market conditions. Consider this: in traditional markets, gaps in this direction get filled 90% of the time.
DASH is not in a good spot. It is experiencing selling pressure from the new D5 miners, while trying to form a stable hashrate range. It is impossible to predict where it will stop, however a breakdown of $60 would cause havoc due to the lack of support until $16. Until then, we formed a strong confluence. $60 became a support (until proven otherwise) together with hashrate forming a range during the plunge to the 1.4PH/s.
Regarding our axiom test. We can safely start price followed hashrate at the start of the bull market. And with DASH we have a specific situation on the opposite side — hashrate tops out together with the price.
In the next part we will be looking into Ethereum, how its “ASICs” influenced it and what Casper might cause to the miner network.