Last year, com The price of bitcoin went up to $ 68,000, the miners were having a great time. Its profits, according to some estimates, were just under 90 percent, and many of them decided to expand their operations at a frantic pace, preparing for an even bigger boom in 2022.
This unexpected did not happen. In recent months, cryptocurrency markets have fallen, with the price of bitcoin hovering around $ 30,630 at the time of writing. At the same time, the price of electricity soared around the world due to rising demand and the war in Ukraine. This is a problem for bitcoin miners, who use energy-consuming mining computers, called ASICs, to coin cryptocurrency by solving complex mathematical problems. According to Bitfury CEO Valery Vavilov, in a 2016 Reuters interview, energy can account for up to 90-95 percent of a miner’s overhead.
In some parts of Europe, energy rates have skyrocketed so much that bitcoin mining can cost up to $ 25,000, says Daniel Jogg, CEO of Enerhash, a company that manages blockchain data centers. . “Some operations were run without profit,” he says. Texas, a hotbed of cryptocurrency mining, has been facing an intense heat wave that has caused the price of energy to rise by 70 percent (from 10.6 cents to 18.4 cents per kilowatt hour) during the last twelve months. The U.S. currently accounts for 37.84 percent of global cryptocurrency activity, according to Cambridge University, following a 2021 mining ban on China’s former cryptocurrency powerhouse. “The problem now is the price of raw energy, but also the volatility of the price of energy,” says Alex Brammer, vice president of business development for cryptocurrency infrastructure company Luxor Mining. “It’s very difficult to model what energy prices will be.”
This problem is exacerbated by the growing number of miners who have joined the network since last summer, which in turn has reduced the individual production of miners. In short, miners pay more to mint fewer bitcoins and their coins are less valuable. While miners continue to make a profit, it is shrinking, says Sam Doctor, director of strategy for digital asset investment bank BitOoda, which estimates that margins are now between 60 and 73 percent. “Even miners who use newer mining platforms, which are comfortably profitable, make less money than before,” he says. The oldest AS9s of the S9 generation, which still make up a third of the mining platforms in use worldwide, are no longer profitable in most cases, adds Doctor. “Now, with the rising price of energy, miners who don’t have a fixed-price energy contract can be compressed by both parties.” The doctor says that most miners, including the largest mining companies, do not have such contracts, because getting one requires a “stronger credit” than most of them today.
Despite the still staggering margins, the miners are in a difficult spot. Most listed mining companies, including industry leaders Riot, Marathon and Core Scientific, have seen their market capitalization fall by more than 50 percent. Both Riot and Core Scientific have lost their bullish revenue estimates and have conservatively revised their expansion plans.
The fear is that if these negative trends do not reverse, this could be just the beginning of a general unrest in the industry. In the two years leading up to the crash, miners struggled to buy ASIC carts to produce more bitcoins. The epitome of this buying boom is Marathon, one of the top three U.S. miners, which bought 78,000 ASICs from manufacturer Bitmain in December. 2021 for a record $ 879 million; which came after another purchase of 30,000 Bitmain ASICs for $ 120 million in August 2021. Marathon’s plan was to run 133,000 computers in the first half of 2022, but in May the company only had 36,830 ASICs operational, after facing installation issues. , adverse weather events at one of its Montana facilities and delays in securing a power contract with the Texas Power Grid. The value of inactive or undelivered ASICs could fall below the price that Marathon (and other mining companies) paid for them near the peak of bitcoin’s upward run, as ASIC prices they generally correlate with that of bitcoin. Marathon spokesman Charlie Schumacher says the company paid for most of its newer mining platforms “well below the current market rate,” except for state-of-the-art platforms like the 78,000 it ordered in December. He says Marathon’s “lightweight asset model,” by which it partners with hosting services instead of building its own infrastructure, protects the company from the problems the industry is experiencing.