Research from the largest broker of mining hardware in North America explores the relationship between their sales data and the spot price of bitcoin.
- Demand for mining hardware from manufacturers has been increasing in line with recent spot price increases
- Research from Blockware Solutions finds a high correlation between the spot price of bitcoin and hardware equipment prices
- The research further indicates institutional miners purchase from retail miners at steep discounts near market bottoms
It’s not surprising that as mining profitability has been increasing, the demand for mining equipment has also been rising. The profitability bitcoin miners have been experiencing has approached twelve-month highs amid recent price increases.
Hardware suppliers have been reporting increased demand for mining equipment as a result of the price increases with inventories noted to already be low. The head of global sales at Canaan told CoinDesk that “the current state of the industry is that inventories are down and demand is high”.
Recent research from Blockware Solutions indicates that there has been a significant investment in mining infrastructure in 2019. Their research explored relationships between the USD spot price of bitcoin and investment in mining.
Blockware Solutions is the largest broker for mining hardware in North America. This involves both facilitating purchases for North American clients directly from foreign manufacturers in addition to coordinating domestic resales.
The research the company produced is based on their own sales data and may have some limitations in this regard. For example, the data may not be reflective of the wider global industry.
Nonetheless, the increase in infrastructure investment is supported by recent reports such as the one published by CoinDesk. The exploration of the relationship also serves to deepen our understanding of how the bitcoin mining market and price market interplay.
Institutional Miners and Bitcoin Price
The spot price of bitcoin was found to be highly correlated with the USD retail price. It was found to be even more closely linked with resales prices.
As demand increased and manufacturers ran out of stocks, resale prices were driven up to account for the increased demand. We may observe a similar phenomenon shortly with recent reports such as the one from CoinDesk showing that manufacturers are struggling to meet the current market demand.
The research further suggests that market tops and bottoms in bitcoin spot price correspond with retail miner buying and institutional miner buying respectively. Blockware’s data suggests that many retail miners purchased mining equipment when hardware prices reached their highs between Q3 2017 and Q1 2018.
Blockware defined retail miners as purchases of less than 100 rigs with institutional miners defined as entities that completed purchases of rig amounts of 100 and above. The sales data found that institutional miners have been purchasing in large quantities from retail miners when hardware prices were at their January 2019 lows.
Retail miners were found to be liquidating their hardware investments to institutional miners for as little as 15 cents on the dollar. Blockware suggests that such a phenomenon “supports the argument in favour of a market bottom, as these large purchases fit the criteria of institutional accumulation”.
“Based on Blockware Solutions data and high sales volume, we have witnessed a reliable signal of Retail Miners selling their mining rigs at radically discounted prices while institutional miners step in and procure these cheap rigs. This is common in the “Bottoming Phase” of market cycles. There is significant overlap between the investors deploying capital in mining and those purchasing Bitcoin off the spot market.”The Mining Market is Not Immune to Human Psychology, Blockware Solutions