Leo Zhang and Karthik Venkatesh from Anicca Research dropped the second part of their series The Alchemy of Hashpower earlier this week and I highly recommend you freaks check it out. Especially if you're interested in the dynamics of the mining industry and the forces that push miners to make certain decisions around purchasing machines and turning them on and off.
As I fall further down the mining rabbit hole due to my involvement with Great American Mining, the more it is becoming glaringly obvious that Bitcoin mining is one of the most ruthlessly capitalistic endeavors one can embark on. This is confirmed by the four stages of the Bitcoin mining market that Leo and Karthik layout in their piece. Uneducated miners buying expensive hardware during bull markets with expectations of sustained inflated prices are quickly brought back down to Earth as the price corrects and they find that they aren't getting nearly enough ROI to remain profitable with relatively high energy costs locked in. Similarly, manufactures providing those miners expect the mania to continue and they produce way more miners than is necessary as a result. Ultimately having to drop the price of machines significantly as the price of bitcoin continues to fall and even having to shut down production completely. This mistake was made by chip juggernaut Nvidia.
Hard lessons are learned in this new Wild West. It is truly something to marvel at.
What will be interesting to see moving forward is how these cycles play out in the future as better information about the whole landscape becomes more widely available to the market, which seems to be the goal of Anicca Research. Do these cycles repeat exactly? Are they less severe than they have been in past cycles? Are they more severe? What if the world wakes up to the fact that Bitcoin is the best money ever created? Does an extended bull market fed by a closing of the gap in the global information asymmetry that currently exists in regards to Bitcoin being significantly undervalued throw a wrench in these cycles?
We shall see.
The closing of Southport Lanes in the Lakeview neighborhood of Chicago due to the forced lockdowns is one of the greatest tragedies of 2020. What an institution. I have many fond memories of afternoons in that pool hall being served PBRs on end by the best bartender in town, Riley "the alley porker". RIP
Enjoy your weekend, freaks.