A July 9th post by @PricedinBTC about the “cost of mining Bitcoin” in the US garnered attention from the crypto community, especially given the recent headlines that BTC miners have made. The cryptocurrency bear market and rising energy costs have created a perfect storm for the mining industry, leading some companies to lay off employees and others to defer all capital expenditures. Some went so far as to raise concerns that Bitcoin miners would enter a “death spiral.”
In bear markets like this, inevitably a Bitcoin critic comes out and says that Bitcoin will soon collapse from a “miner death spiral”, meaning that miners will go offline because it is not profitable to run their operations, and then Bitcoin’s hash rate will fall , causing its…
— Cory Klippsten (@coryklippsten) July 6, 2022
In bear markets like this, a Bitcoin critic inevitably comes out and says that Bitcoin will soon crash due to a “miner death spiral”, meaning miners will go offline because it is not profitable to run their trades, and then the rate of Bitcoin hash will drop, causing its…
However, Raymond Nasser, CEO of Arthur Mining, a professional mining company operating in the United States, told Cointelegraph that his margins do not entirely match @PricedinBTC data.
Cost to mine 1 #bitcoin in every US state pic.twitter.com/JKug0KtGVq
— Priced in ₿itcoin ∞/21M (@PricedinBTC) July 9, 2022
Cost to mine 1 #bitcoin in each US state
Arthur Mining’s current capacity is 25 megawatts (MW) and the company is focused on environmentally friendly energy sources. At first, one might discount their figures, as publicly traded companies like Marathon Digital Holdings have 300 MW plants, but these rely on power from the traditional grid, even though some of the power comes from hydroelectric plants.
To achieve best environmental, social and governance (ESG) practices, smaller-scale mining operations use undervalued gas and waste gas from the oil and gas industry. Their secret is mobile Bitcoin mining facilities, which take advantage of greener, more efficient and cost-effective energy sources compared to traditional solutions.
As for the $16,000 production cost for miners, Nasser said:
“These diagrams are extremely subjective. The largest new projects in the industry are looking at off-grid solutions, and this diagram represents some of the most expensive on-grid energy costs used in urban areas. Total energy costs are lower than $0.02 kWh in two different US states.”
The cost of electricity has doubled in the last year
QuickElectricity data shows that as of March 2022, business electricity costs per kilowatt hour (kWh) ranged from $0.08 to $0.09 in the US states of Idaho, Utah, Virginia, Texas, Nevada, North Dakota, Nebraska and Oklahoma.
One of the strengths of the Bitcoin network is that it prioritizes efficiency, which means that the labor-intensive production process will always seek and target the lowest operating costs. ASIC mining equipment is mobile, but more importantly, there is the possibility of using other power sources. For example, these machines can be installed in containers, shipped to offshore oil and gas structures, and work with oscillating power sources.
Till the date, Upstream Data, a Canada-based manufacturer of Bitcoin mining data centers, builds portable Bitcoin mining equipment and natural gas infrastructure without the need for intermediate pipelines or facilities. After deploying more than 180 of these data centers, it is clear that this activity is becoming more traditional.
Earlier this year, CNBC explored how renewable energy is used in the Bitcoin mining process, and to date, Giga Energy Solutions, a natural gas Bitcoin mining company, has signed deals with more than 20 companies. oil and gas companies, four of which are publicly traded.
Higher interest rates and the collapse of Bitcoin are hurting BTC miners
Regardless of the power source, miners have had problems with their balance sheets. In addition to the impact of falling Bitcoin prices, funding has been a major hurdle for the industry. A Cointelegraph report on July 7 examined how industrial-sized Bitcoin miners owe some $4 billion in loans and some have been forced to liquidate their BTC holdings to cover capital and operating costs.
But not all mining companies have access to traditional long-term bank financing. Therefore, these companies created a riskier debt structure by offering their miners and their infrastructure as collateral.. When the price of Bitcoin crashed, so did the prices of mining equipment, in turn worsening their funding conditions when they needed it most.
Blockware Solutions analyst Rich Ferolo expressed his concern to Cointelegraph on June 28:
“For the s17s [mineros ASIC]At $0.07 per kilowatt, BTC has to be around $18,000… you’re going to see a lot of capitulation, insolvency, and glut of machines… It’s more about survival of the fittest.”
According to Nasser:
“We have always mitigated our exposure to convexity by immediately reinvesting or liquidating our bitcoin balances on a weekly basis. We understand that with ebitdas over 70% and high efficiency in most cases, being too greedy holding Bitcoin reserves can break your trade and cost you jobs, as we’ve seen in the last month.
The mining industry has a problem, but its impact is limited
The sector clearly has a problem, but this could simply be a reflection of its infancy. Still, the impact of miners selling more Bitcoin than they have mined in the last two months may be creating additional pressure on the BTC price.
This endless cycle reinforces the “death spiral” theory, but this oversimplification fails to take into account that miners simply turn off their machines below a certain price threshold and that many will move to areas with higher electricity costs. cheap or even look for renewable options.
Although the decrease in mining activity does pose a short-term risk, as the network becomes less secure, this risk is exaggerated because Bitcoin’s difficulty adjustment increases the operational profitability of miners. In short, the Bitcoin mining business does not pose a systemic risk to the BTC price.
The views and opinions expressed herein are solely those of the Author and do not necessarily reflect the views of Cointelegraph. All investment and trading movements involve risk. You should do your own research when making a decision.
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