On July 9, a post from @PricedinBTC about the “cost of mining Bitcoin” in the US caught the attention of the cryptocurrency community, especially in light of recent headlines made by BTC miners. The cryptocurrency market and rising energy costs have caused a complete storm for the mining sector and this has led some companies to lay off employees and others to postpone all financial expenses. Some have gone so far as to worry that Bitcoin miners will end up in a “death spiral”.
In bear markets like this, a Bitcoin critic inevitably comes out saying that Bitcoin will soon collapse from the “death spiral of miners”, which means that miners will go offline because it is not profitable to run their business, and then the Bitcoin hash rate will fall, which causes…
– Cory Klippsten (@coryklippsten) July 6, 2022
However, Raymond Nasser, CEO of Arthur Mining, a US-based mining company, told Cointelegraph that their margins were not in line with @PricedinBTC data.
– Price in coinitcoin ∞ / 21M (@PricedinBTC) July 9, 2022
Arthur Mining’s current capacity is 25 megawatts (MW) and the company focuses on environmentally friendly energy sources. At first, one could dismiss their figures as listed companies such as Marathon Digital Holdings have 300 MW plants, but they rely on conventional grid energy – even if some of the energy comes from hydropower plants.
To achieve the best practices in environmental, social and governance (ESG) practices, smaller mines use undervalued flame and stranded gas from the oil and gas industry. Their secret is mobile Bitcoin mining facilities, using greener, more efficient and more profitable energy sources compared to traditional solutions.
Regarding the $ 16,000 production cost of miners, Nasser said:
“These diagrams are extremely subjective. The biggest new projects in the industry are looking for off-grid solutions and this diagram shows some of the most expensive energy costs within the network used in urban areas. Our total energy costs are less than $ 0.02 kWh in two different US states.”
Electricity costs have doubled in the last year
Data from QuickElectricity show that from March 2022, commercial electricity costs were per kilowatt / hour. (kWh) ranges from $ 0.08 to $ 0.09 in the US state of Idaho, Utah, Virginia, Texas, Nevada, North Dakota, Nebraska and Oklahoma.
One of the strongest aspects of the Bitcoin network is that it prioritizes efficiency, which means that the labor-intensive production process will always look for the lowest operating costs and shift towards it. ASIC mining equipment is mobile, but more importantly it is an alternative to other energy sources. For example, these machines can be placed in containers, sent to offshore oil and gas installations and work with a oscillating energy source.
To date, Upstream Data, a Canada-based maker of Bitcoin mining data centers, builds portable Bitcoin mining equipment and infrastructure for natural gas without the need for pipelines or midstream facilities. After installing over 180 of these data centers, it is becoming clear that these activities are becoming widespread.
Earlier this year, CNBC surveyed how renewable energy is used in the Bitcoin mining process, and so far Giga Energy Solutions, a natural gas bitcoin mining company, has signed contracts with more than 20 oil and gas companies, four of which are in the public domain.
Higher interest rates and the collapse of Bitcoin hurt BTC miners
Regardless of the energy source, miners have struggled with their balance sheets. In addition to the effects of lower Bitcoin prices, funding has been a major obstacle in the industry. The July 7 report by the Cointelegraph examined how Bitcoin-sized miners owe $ 4 billion in loans and some have been forced to liquidate their BTC assets to cover capital and operating costs.
But not all mining companies have access to traditional long-term bank financing. In this way, these companies created a riskier debt structure by offering their miners and infrastructure as collateral. As the price of Bitcoin fell, the price of mining equipment fell and their financing conditions worsened when needed most.
Blockware Solutions analyst Rich Ferolo expressed his concern to Cointelegraph on June 28:
“Before s17 [ASIC miner]”at $ 0.07 per kilowatt, BTC has to be around $ 18,000 …. you will see a lot of contempt, bankruptcy and excess machinery … It’s more about the best survivors.”
According to Nasser:
“We have always reduced our exposure by immediately reinvesting or closing our bitcoin balances weekly. We understand that with 70% + ebitdas and high efficiency in most cases, being too greedy by keeping Bitcoin reserves can ruin your business and cost you jobs, as we have seen over the past month “.
The mining industry faces problems but its impact is limited
The industry is clearly in trouble, but this could simply be a reflection of his infancy. However, the impact of miners selling more Bitcoin than they have earned in recent months may be putting increasing pressure on BTC prices.
This endless cycle reinforces the “death spiral” theory, but this oversimplification does not take into account that miners simply turn off their machines below a certain price point and that many will locate in areas with cheaper electricity costs or even look for renewable options.
While less mining actually creates short-term risk as the network becomes less secure, this risk is overestimated because Bitcoin’s difficulty adapting increases mining profitability. In short, the Bitcoin mining company does not pose a systemic risk for BTC prices.
The views and opinions expressed herein are theirs alone author and do not necessarily reflect the views of Cointelegraph. Every investment and business involves risk. You should do your own research when making a decision.
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