The Deep Dive
Bitcoin miners are exposed to two hard-to-predict variables that have a large impact on revenue: bitcoin price and network hashrate. When bitcoin price decreases, the dollar value of the block reward and transaction fees that a miner receives when mining a block decrease. When network hashrate increases, a miner’s percent of total network hashrate decreases. This decrease in share of network hashrate means the miner has a lower probability of mining a block and generating revenue through the block reward and transaction fees. While there are a range of products on the market today that would allow a miner to hedge against an unexpected price drop, there are very few available options that allow miners to hedge against unexpected increases in network hashrate. Several new products have emerged within the last year that target this unmet demand for improved risk management in the mining industry. We are researching these new products and have engaged in discussions with some of the external firms that created them to discuss the specifics of the products. The intention is to create a Fidelity-perspective on how to best incorporate these products and which products are best suited to a miner’s needs. This initiative proves the merits of these derivatives and helps us form a strategy for how to best utilize the products as Fidelity continues to grow its mining operation.
