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Record Mining Difficulty Shows Industry Growth Despite Bitcoin Bear Market

The bears can’t keep miners down as data shows increasing hash rate — which could lead to some uncomfortable hash price realities.

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The bears can’t keep miners down as data shows increasing hash rate — which could lead to some uncomfortable hash price realities.

Bitcoin may be in a bearish market, but the mining industry is growing bigger than ever. Bitcoin mining difficulty set a new record high for the sixth time this year on Tuesday, reaching 31.25 trillion, according to mining data from Braiins. The 4.89% adjustment was the third-largest increase this year.

Even though the leading cryptocurrency’s price has dropped sharply through April and May and continues sitting over 50% below its all-time high from late 2021, the mining industry’s growth is not slowing. Traditional investors, retail buyers, and even day traders may be bearish on bitcoin, but miners are not. This article unpacks some of the data that demonstrates the mining sector’s growth despite bitcoin’s current bearish market conditions.

Bitcoin Mining Growth Data

Bitcoin’s price and mining difficulty demonstrated a fairly strong positive correlation throughout most of 2021. During the bullish periods of early 2021 followed by the China-ban-related crash in the summer and a market rebound to close the year, both metrics moved closely together. But difficulty and price are typically only positively correlated during bullish markets when both metrics increase together. The line chart below visualizes price and difficulty data from the past three years, and for the past six months as bitcoin’s price has fallen, mining difficulty has continued to surge.

Despite consistently setting record highs this year, all the difficulty increases have been fairly mild on a percentage basis. Difficulty continues grinding upward as more miners deploy new hash rate, but none of the increases in 2022 have been 10% or larger. In late January, difficulty increased by 9.3%, but every other increase has been roughly 5% or smaller. The bar chart below shows a simple ordering of all historical difficulty increases since ASIC mining hardware entered the market in late 2012. But none of these adjustments have happened in 2012.

Difficulty increases come from more hash rate, which means an increasingly large amount of computing power is being spent to process transactions for the Bitcoin network and protect the integrity of its distributed ledger. This is objectively a good thing for Bitcoin. But for the economics of some miners, it’s not always something to celebrate because as difficulty increases, hash price drops.

Hash price is a measure of expected revenue per unit of hash rate a miner contributes to the network. Hash price goes up when bitcoin’s price increases faster than difficulty. It also goes up when bitcoin’s price drops slower than difficulty. But when difficulty increases and bitcoin’s price drops as is happening under current market conditions, hash price plummets.

The line chart below shows hash price and difficulty data since early 2021 and the steep decline in hash price is obvious as difficulty soars.

So, even though more miners securing the network is fundamentally bullish, it can be bearish for mining economics especially in a downward-trending market.

Timing Of Bitcoin Mining Growth

To anyone who isn’t intimately familiar with the dynamics of bitcoin mining, it’s reasonable to question why the sector continues to grow despite an ongoing bear market phase. A few general reasons offer some explanation for this growth, and the following section on where growth is happening now will add more context.

Mining projects, from start to full deployment, are very time-consuming and capital-intensive projects. Much of the hash rate being added to the network now was planned at least two years ago. After battling delays and supply chain disruptions during the global COVID-19 response, miners are not ignoring market conditions as much as simply finishing projects they started planning years ago.

Bear markets are often friendlier conditions to start new mining operations anyway. Hardware is cheaper. Hype has dissipated. Focus is easier to maintain. And miners who join the industry in the heat of a bull run tend to have a significantly higher likelihood of failing or being squeezed out of the market compared to miners who begin building in bearish markets. And more important for most miners than current price fluctuations is the block subsidy schedule. The next reward halving is almost exactly two years away, meaning miners are building now to capitalize on as much of the remaining 6.25 BTC period until it ends, and some miners are inevitably squeezed out of the market.

Also, even though this article has repeatedly referenced the current “bear market” for bitcoin, it’s worth noting that there has almost never been a true bear market period for bitcoin’s hash rate growth, and by extension for difficulty. China’s mining ban caused a historic break from the normal up-and-to-the-right growth trend for hash rate, but now growth is back on track. As the line chart below shows, hash rate is almost always in a bull market.

Mining Growth Breakdown

So, where is the mining sector’s growth happening? Home and small-scale miners are still very much active in building their own operations and using many of the new retail-focused products and services that launched during the bull market. Twitter and other social media are saturated with photos and videos of at-home mining setups.

Public mining companies also continue planning big expansions. For example, Riot Blockchain, one of the market-leading mining firms, announced a new one-gigawatt facility planned for Navarro County, Texas in addition to the 400 MW facility already developed in Rockdale. Other market leaders like Bitfarms and Core Scientific also made recent announcements of considerable growth.

Even cities and local municipalities are entering the mining industry, albeit at very small scale. Bitcoin mining start-up MintGreen is working to make North Vancouver the world’s first city heated by bitcoin mining. And the city council in Forth Worth, Texas voted to pass support to launch a small government-run mining pilot project with some Antminer S9 machines.

Some of the most exciting growth for general bitcoin audiences comes from news of an increasing number of energy and utilities companies exploring the mining industry. The Hungarian subsidiary of multi-billion-dollar utilities company E.ON has been running a mining pilot project for months with plans to expand. Some of the biggest oil producers in the U.S. – ExxonMobil and ConocoPhillips – are also building partnerships with miners. And miners are saturating the Permian Basin with educational efforts to build partnerships with other energy producers.

Conclusion

Despite bitcoin’s bearish price action, the mining industry is still in its own bull market. And even though continued hash rate growth despite downward trending prices means dwindling revenue for some miners, the aggregate growth of the industry is a strong signal for the security of the network and the long-term resilience of the entire bitcoin economy.

This is a guest post by Zack Voell. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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Goya CEO Issues Dire Warning On Looming Food Crisis

Goya CEO Issues Dire Warning On Looming Food Crisis

By Ella Kietlinska and Joshua Philipp of the Epoch Times

Policies leading to a war on…

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Goya CEO Issues Dire Warning On Looming Food Crisis

By Ella Kietlinska and Joshua Philipp of the Epoch Times

Policies leading to a war on fossil fuel as well as the Russian invasion of Ukraine will contribute to a food crisis, according to Robert Unanue, President and CEO of Goya Foods. “We are on the precipice of food shortage.”

Carlos Vecchio, the Venezuelan Ambassador who is recognized by the United States, and Goya Foods President Robert Unanue hold a press conference together on December 21, 2020 in Doral, Florida. The two held the press conference to discuss details of a recent shipment of humanitarian aid to Venezuela, donated by Goya Foods.

Russia and Ukraine together produce half of the fertilizer used in the United States and fertilizer prices have quadrupled, Unanue said on EpochTV’s “Crossroads” program.

However, the fourfold surge in fertilizer prices will affect African and European countries more severely than the United States because the latter is currently more independent with regard to food, Unanue said, with the big problem being that it’s planting season in southeastern Ukraine and people are fighting a war.

“There’s two and a half million acres of sunflowers to be planted,” he said. Farmers there will be planting less and yielding less, because of the rising costs and the lack of good yield. “It’s going to send food prices spiraling.”

A combine harvester gathers wheat in a field near the village of Hrebeni in Kyiv region, Ukraine, on July 17, 2020.

Both Ukraine and Russia are major producers of the world’s wheat and corn. Together, they account for about 29 percent of global wheat exports, 19 percent of global corn supply, and 80 percent of global sunflower oil exports.

Moreover, the irrigation systems in southeastern Ukraine have been bombed and ports have been cut off, Unanue noted. Mariupol, a port on the Azov Sea, has already been cut off, and Odesa, a Black Sea port, is the next target, he added. “That will landlock Ukraine and prevent them from exporting.”

The biggest component of food cost is transportation, so the current war on fossil fuels has made the United States no longer oil independent.

“Shipping in a pipeline is free,” he said. “But when you put it on a ship, with rates 10 times where they were two years ago, we are buying oil at retail.”

Nitrogen-based fertilizers are made from natural gas, so the war on fossil fuels and energy independence also impacts the cost of fertilizers, Unanue said.

The CEO gave an example of coconut water, which his company imports from Thailand in bulk, to illustrate the impact of the surge in transportation costs.

A case of coconut water used to cost $1.44, but now the cost per case has increased to $15 due to rising transportation expenditure, he said. “That’s an inflation, a tenfold inflation.”

This illustration photo taken on July 11, 2020, shows a selection of Goya food products in a Los Angeles supermarket.

Goya has embarked on a mission to provide humanitarian and spiritual aid to Ukrainian refugees in Poland. The company partnered with organizations and individuals such as the Knights of Columbus of Poland, Global Empowerment Mission (GEM), and ex-U.S. green berets who will distribute food donated by Goya from its European facility as well as rosaries donated by Americans, Unanue said.

He said the ex-green berets are very courageous men, having gone into 40 cities in Ukraine with food and medicine.

“We’re there with nourishing the body, but we also want to nourish the soul,” he said of the company’s creed.

“God created humanity. But humanity has created the way to destroy itself—nuclear, chemical, biological,” Unanue said. “Now we’re using food as a weapon. We have to move closer to God.”

“We need to love and build, not hate and destroy. And that’s our mission.”

Firefighters respond to an industrial fire that threatened a Perdue Farms facility in Virginia on April 30, 2022. 

With a food crisis looming, recent fires and other accidents that occurred at a multitude of food processing facilities within the last few months, raising concerns over yet another burden on an already vulnerable food industry.

Unanue said that such incidents often occur due to deferring preventive maintenance of these facilities during the COVID-19 pandemic. When lockdowns were imposed on most companies and businesses, the food industry kept working.

Since then, Goya has doubled its capacity and its facilities operate around the clock, but “any factory needs to stop for maintenance at least once a year,” he said, adding that Goya’s plants stop twice a year for maintenance.

Tyler Durden Mon, 05/16/2022 - 17:45

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Oil Prices Surge Past $113 As Shanghai Signals End Of Lockdown

Oil Prices Surge Past $113 As Shanghai Signals End Of Lockdown

By Charles Kennedy of OilPrice.com,

Oil prices have topped $113 per barrel…

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Oil Prices Surge Past $113 As Shanghai Signals End Of Lockdown

By Charles Kennedy of OilPrice.com,

Oil prices have topped $113 per barrel on optimism that China’s lockdowns are coming to an end and demand will not take a prolonged hit. 

In early afternoon markets Monday, news that Shanghai was seeing a strong recovery from COVID cases, with plans in place to ease lockdown restrictions beginning this week, outweighed a litany of bearish news for oil. 

Brent was at $113.97 per barrel on 3:20 pm EST, while WTI was trading at $113.77.

WTI neared $115...

Authorities in Shanghai on Monday said restrictions would finally ease, in stages, after nearly six weeks of lockdowns that have shaken the Chinese economy and disrupted global supply chains.

On 1 June, Shanghai is scheduled to see lockdowns end, with a gradual easing beginning on May 21st. 

“From June 1 to mid- and late June, as long as risks of a rebound in infections are controlled, we will fully implement epidemic prevention and control, normalise management and fully restore normal production and life in the city,” the Guardian quoted deputy mayor Zong Ming as saying Monday. 

The announcement comes shortly after downward pressure was put on oil prices over new releases of weak Chinese economic data and signals that the European Union’s plans to ban Russian oil had faltered.

On Monday, China published official economic data, showing a significant slowdown, with industrial output falling by nearly 3% year-on-year in April, and retail sales down by around 11%. Shanghai’s port volumes were also down by 40%, according to DW.  

All of this has led to a decline in demand for oil coming out of China. 

However, according to new data from the Saudi Arabia-based Joint Organizations Data Initiative (JODI), global oil demand surpassed pre-pandemic levels in March, at 101%, despite declines in Chinese demand. However, the report noted that crude oil production was at 97% of pre-COVID levels. The data is based on submissions that account for 70% of global oil demand and 55% of global crude production. 

Tyler Durden Mon, 05/16/2022 - 17:05

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A Slowdown in Showings

Today, in the Calculated Risk Real Estate Newsletter: A Slowdown in ShowingsA brief excerpt: The following data is courtesy of David Arbit, Director of Research at the Minneapolis Area REALTORS® and NorthstarMLS (posted with permission). Here is a lin…

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Today, in the Calculated Risk Real Estate Newsletter: A Slowdown in Showings

A brief excerpt:
The following data is courtesy of David Arbit, Director of Research at the Minneapolis Area REALTORS® and NorthstarMLS (posted with permission). Here is a link to their data.

The first graph shows the 7-day average showings for the Twin Cities area for 2019, 2020, 2021, and 2022.

There was a huge dip in showings in 2020 (black) at the start of the pandemic, and then showing were well above 2019 (blue) levels for the rest of the year. And showings in 2021 (gold) were very strong in the first half of the year, and then were closer to 2019 in the 2nd half.

Click on graph for larger image.

Note that there were dips in showings during holidays (July 4th, Memorial Day, Thanksgiving and Christmas), and also dips related to protests and curfews related to the deaths of George Floyd and Daunte Wright.

2022 (red) started off solid but is now below the previous three years.
There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/

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