ASIC pricing for dummies
A newbies guide to how ASIC efficiency determines spot price.
Explaining Bitcoin mining can be a full-time job. It’s a challenge of finding the appropriate analogies and helping others connect the dots. This week, we’re going to dive into the pricing schema of Bitcoin mining machines, or “ASICS”. The audience here is someone who’s interested in mining Bitcoin, knows what a Bitcoin mine might look like, but doesn’t know why one mine might cost $1.5 million per Megawatt and another might cost $250k/MW.
The first ASIC I ever bought back in 2017, the Halong Dragonmint T1. Still runs great.
Different ASICs, like different personal computers, are faster or slower depending on when & how they were manufactured. The measure of production of an ASIC is “Terahash” or “Th”, and is comparable to horsepower for an engine. More Th, the more Bitcoin mined.
Each ASIC also consumes different amounts of power, typically 1,300 Watts to 3,400 Watts. The primary expense of running an ASIC is its power consumption, and therefore the “cost” to run an ASIC is a function of energy price * power draw, expressed as $/kWh * kWh.
ASICs are priced by their profitability. An ASIC that uses 3,350W to produce 64 Terahash is priced lower than an ASIC that uses 3,350W to produce 90Th.
ASICs are priced based upon their return over the next year given the profitability today, which is a function of Bitcoin price and network hashrate.
That brings us to the emerging pricing schema for ASICs as currently exists today in North America.
ASICs are divided into 4 tiers by efficiency (J/Th), Terahash produced is priced differently by tier.
Efficiency is defined by the ratio of Watts to Terahash produced, or Joules/Terahash (J/Th). The cutoff & pricing for each tier is not an exact science, but it looks a little like this:
Tier 1: <38 J/Th
Tier 2: 38 - 60 J/Th
Tier 3: 60 - 100 J/Th
Tier 4: >100 J/Th
At today’s profitability, the “Tier 1” ASICs are priced at about $93/Th. For example, the most popular ASIC in the category, the Bitmain S19, will produce 110Th. So one Bitmain S19, delivered today, will cost $95 * 110Th, or $10,450 (assuming you have the best deal available which is not always the case).
The most famous ASIC to-date, the Bitmain S9, is Tier 3 and produces 13.5Th. Tier 3 currently runs about $41/Th, so an S9 delivered today would be about $550.
ASIC delivery time is also a price factor. An ASIC purchased & delivered today will cost more than an ASIC purchased today and delivered in 6 months. The reduced price for a future delivery is a function of the lost revenue had the ASIC been mining for the number of months delayed. So the S19 from earlier would cost about $10,450 delivered today and about $7,500 delivered in 6 months.
This is just a crash-course overview of the emerging ASIC pricing convention. In future memos we will talk about how this pricing convention may evolve and where the ASIC market overall is headed.
To learn more about the ASIC marketplace, see a previous memo, Bitcoin Miners are the new Horse Traders.
Charlie Spears, Strategy
Noteworthy stories this week
Natural gas Bitcoin miners meet in Houston.
Forbes article on the NFT Generative art movement, quoting “limp”, cousin of Nakamotor Strategy, Charlie Spear
Proof of Work
Compute North explains Proof of Work & Proof of Stake
Compass Mining “What Mainstream Media Gets Bitcoin Mining Wrong”