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Crypto Mining specialists had a blast last year as the price of BTC rose as high as $68,000. According to some estimates, their earnings were hovering just near 90%, and many of them opted to expand their operations at a breakneck rate in anticipation of an even bigger bonanza in 2022.
That windfall has not materialized. Cryptocurrency markets have plummeted in recent months, with bitcoin’s price sitting at low levels at the time of writing. At the same time, due to a rebound in demand and the war in Ukraine, electricity prices soared around the world.
This is a challenge for bitcoin miners, who utilize high-energy mining computers known as ASICs to create Bitcoin by solving complex mathematical puzzles. According to Bitfury CEO, Valery Vavilov, in a 2016 interview with Reuters, energy can account for up to 90% of a miner’s overhead.
Crypto Mining Energy Consumption
According to Daniel Jogg, CEO of Enerhash, a business that runs blockchain data centers, energy rates have risen so substantially in some regions of Europe that mining one bitcoin can cost up to $25,000 in some areas.
“Some operations were operating at a loss,” he says. Texas, a bitcoin mining hotspot, has been dealing with a severe heat wave that has led electricity prices to rise by 70% in the last year, from 10.6 cents to 18.4 cents per kilowatt/hour.
To keep Bitcoin running, more energy is needed than what New Zealand and Belgium use together. How can a virtual thing keep power plants all over the world so busy? Tim Rooks from DW looks at the numbers.
Following a mining ban in prior crypto powerhouse China in 2021, the United States now accounts for 37.84 percent of worldwide crypto-mining activity, according to the University of Cambridge. “The concern currently is not only the price of electricity on a gross basis, but also the price volatility,” explains Alex Brammer, vice president of business development at crypto-mining infrastructure startup Luxor Mining. “It’s quite difficult to predict what energy prices will be in the future.”
Crypto Mining Activity on the Rise
Since last summer, a growing number of miners have joined the network, which has resulted in individual miners’ outputs being lowered. In short, miners are paying more to produce fewer bitcoins, lowering the value of their currency. While miners are still making money, it is declining, according to Sam Doctor, chief strategy officer at digital asset investment bank BitOoda, who puts margins at 60 to 73 percent. “Even miners who use newer mining rigs, which are profitable,” he continues, “are making less money than before.”
Doctor adds that older ASICs from the S9 generation, which still account for a third of all mining rigs in operation throughout the world, are no longer economical in most circumstances. “Now that energy prices are rising, miners without a fixed-price energy contract may be squeezed on both sides.” Most miners, especially larger mining companies, do not have such contracts, according to Doctor, because obtaining one demands “stronger credit” than most of them now have.
The Hardest Situation Ever for Crypto Mining
Miners are in a difficult situation, despite the nevertheless impressive margins. The market capitalization of most publicly traded mining businesses has plummeted by more than 50%, including industry heavyweights Riot, Marathon, and Core Scientific. Riot and Core Scientific both fell short of their optimistic sales forecasts and have scaled back their expansion plans.
The danger is that if these unfavorable patterns continue, this might be the start of a larger industry-wide downturn. Miners were eager to buy cartloads of ASICs to churn out more bitcoin in the two years leading up to the meltdown. Marathon, one of the top three miners in the United States, purchased 78,000 ASICs from manufacturer Bitmain for a record $879 million in December 2021, following up with another purchase of 30,000 Bitmain ASICs for $120 million in August 2021.
More and More Rigs
Marathon had planned to run 133,000 rigs by the first half of 2022, but as of May, it only had 36,830 operating ASICs due to installation issues, bad weather at one of its Montana plants, and delays in getting an energy contract with Texas’ power system. Because ASIC prices are often associated with bitcoin prices, the value of idle or yet-to-be-delivered ASICs could soon fall below the amount that Marathon—and other mining companies—paid for them around the peak of bitcoin’s bull run.
Marathon’s representative, Charlie Schumacher, claims that the business paid “much below the current market pricing” for most of its newer mining rigs, with the exception of last-generation rigs like the 78,000 it ordered in December. Marathon’s “asset-light approach,” in which the firm contracts with hosting services rather than constructing its own infrastructure, he claims, protects the company from the industry’s problems.
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