10/13/2023 1 Comment

1. This Is How Bitcoin Miners Are Preparing for the Halving

The upcoming Bitcoin (BTC) halving, which halves the reward miners earn for solving Bitcoin transaction blocks to 3.25 BTC, is historically a bullish event. Recently, several miners bought more powerful equipment to increase their chances of winning the BTC after the halving.

But Bitcoin’s algorithm makes it more difficult to solve blocks the more machines come online. As a result, miners must expend more energy to qualify for a reward.

The verification process commenced the first time the Bitcoin network collected enough transactions to fill a block. Initially, a general-purpose computer could work out the hash of the block and earn a so-called block reward.

As businesses bought more machines to increase their chances, the algorithm made solving blocks harder. A puzzle that off-the-shelf consumers could once solve later needed specialized computers made by a few companies.

The energy consumption of these purpose-built computers, called application-specific integrated circuits, or ASICs, raise miner operating expenses. Profits can rise with Bitcoin’s price, but the converse is also true, requiring miners to plan for the worst.

The prolonged bear market in 2022 and 2023 saw several miners unable to service debt due to falling crypto prices. Some agreed to be acquired by bigger companies, while others diversified their businesses.

A few returned ASICs they pledged as collateral for loans they couldn’t afford. Some, like Core Scientific, filed for bankruptcy, as spiraling debts and falling Bitcoin prices forced a restructuring.

But those who made it through are now looking to the next major event on the Bitcoin calendar: the 2024 halving. A Texas-based mining CEO, Didar Bekbauov, told BeInCrypto of strategies his company, Xive, and others are exploring to ensure they are prepared for any post-halving Bitcoin price reaction.

How Bitcoin Rewards Keep Miners Well-Capitalized

Riot Platforms and Marathon Digital, two of the five major public miners, survived the bear market in different ways. Riot Blockchain rebranded as Riot Platforms in January, after expanding to include equipment manufacturer ESS Metron.

In its most recent quarterly earnings report, Marathon Digital secured a 1% increase in additional equity financing from Bank of New York Mellon Corporation, while Private Advisor Group LLC raised its stake in the Bitcoin miner to $495 million. In Q3, the company increased its Bitcoin output to 1,242, a 245% increase from September last year.

Riot, and another public miner, CleanSpark, produced 362 BTC and 642 BTC respectively last month, ending a quarter CleanSpark says exceeded expectations. Their output ensures these Bitcoin miners are well-capitalized and can continue operating in the event of a downturn.

BeInCrypto was not able to independently verify this number.

Bekbauov also believes that larger companies are exploring the possibility of acquiring smaller miners who may not survive the bear market because of insufficient capital, inefficient ASICs, or unoptimized power-purchasing agreements (PPAs).

What role do power-purchasing agreements (PPAS) play in the profitability of mining companies? It turns out that PPAS reduce risk for power producers and consumers by pre-negotiating prices based on expected energy consumption.

PPAs Also Keep Bitcoin Miners Well-Capitalized

Texas lawmakers recently opposed power-purchasing agreements that Bitcoin miners have struck with the Energy Reliability Council of Texas (ERCOT), arguing it exploits an aging system. Under the agreement, ERCOT pays miners for agreeing to switch off ASICs during periods of increased demand.

For example, between midnight and 16:00. on June 23, 2023, Riot earned over $42,000 for just agreeing to turn off its equipment. In 2023, the company saved $27 million by switching off 99% of ASICs and a further $18 million by halting mining and selling electricity to other consumers.

These revenues, coupled with $150 million-plus in Bitcoin earnings year-to-date, suggest Riot would survive the dual challenge of high Bitcoin difficulty and a low Bitcoin price. CleanSpark, which earned 6,904 Bitcoin in the fiscal year ending Sept. 30, is similarly well-capitalized.

By comparison, New York’s stricter approach to energy usage has made power-purchasing agreements less attractive. Greenidge Generation Holdings, a miner that uses natural gas to power Bitcoin mining, amended plans to expand in multiple regions after the passage of a moratorium banned the renewal of permits to convert fossil-fuel plants to Bitcoin mining facilities.

Kazakhstan, once a haven for cheap electricity following China’s mining ban, recently prohibited miners from using grid power that was not surplus. Miners’ peak consumption increased to more than 7% of the national demand, moving the grid from surplus into deficit and sparking mass protests.

2. Top 10 Bitcoin Mining Countries & Their Renewable Electricity Mix

Bitcoin miners use an estimated 348 terawatt hours of electricity per year, and with the world increasingly moving to renewables, some are asking the question: just where does Bitcoin get its electricity?

To answer that question, we partnered with HIVE Digital to visualize data from the Cambridge Centre for Alternative Finance and Ember, a climate-oriented energy think tank, to look at the Bitcoin network’s electricity mix.

This is part one in our How Green is Bitcoin? series, which examines the cryptocurrency’s sustainability. 

The World According to Bitcoin

The top 10 countries for Bitcoin mining represent 93.8% of the entire network by hashrate—a measure of computational power—with the U.S., China, and Kazakhstan rounding out the top three. Together these three countries hosted nearly three-quarters of the network at the end of 2021.

China used to be the top spot for Bitcoin mining, up to 75% of global capacity, but a crackdown in the summer of 2021 saw their share drop to nil in just a couple months. Many miners relocated to nearby Kazakhstan, attracted by cheap electricity, loose regulations, and a ‘stable’ political climate, while others opted for the United States. A sizable covert mining scene has also emerged in China, now that the dust has settled.

At the bottom of the top 10 are Ireland, Singapore, and Thailand, which together host 4.9% of the network. Ireland’s reported share—and this applies to sixth-place Germany, as well—is thought to be a significant overstatement caused by miners in other countries masking their true locations.

The Role of Renewables

On a national basis, the U.S., China, and Kazakhstan each had renewable shares of 22.5%, 30.2%, and 11.3% respectively. For context, renewables made up 30% of the world’s electricity generation in 2022 (not including nuclear).

Kazakhstan’s dismal renewable share is due to their heavy reliance on coal (60%), which is also a major export of the central Asian country. At the same time, coal contributes a similar amount of the electricity in China (61%), but their overall renewable share is higher because of their breakneck expansion of wind and solar power.

Wagons Ho?

Just where a Bitcoin miner sets up their rig is important, because unlike many other industries with factories or big head offices, they are mobile (Google ‘Bitcoin mining shipping containers’ if you need convincing).

Where they choose to put out their shingle is based on things like the regulatory regime, price of electricity, and because Bitcoin rigs generate a lot of heat, the average outdoor temperature. On this last point, here is how the top 10 breaks down by mean annual temperature:

Increasingly, though, with climate change driving the push to renewables, many Bitcoin miners are looking more closely at where their electricity is coming from. This could be why Canada—with its embarrassment of hydroelectric riches—has crept up the ranking from less than one percent of the network in 2019, to six-and-a-half percent at the end of 2021.

But considering that top renewable countries such as Iceland, Paraguay, and Norway together only hosted just over one percent of the global network, there’s still a lot more room left for growth.

Hut 8 boosts self-mined Bitcoin reserves to 9.4K amid USBTC merger

The Canadian Bitcoin mining company Hut 8 continues to accumulate self-mined BTC amid the ongoing merger deal with the industrial cryptocurrency miner, US Bitcoin (USBTC).

Hut 8 mined 111 Bitcoin in September 2023, bringing its self-mined BTC reserves to 9,366 Bitcoin, the firm announced on Oct. 10.

The amount of Bitcoin mined by Hut 8 in September is up around 8% from the previous month but is still significantly lower than in May 2023 when Hut mined 147 BTC. The Bitcoin miner has seen its mining pace drop significantly over the past year, as its monthly mining volumes dropped nearly 60% from 277 BTC mined in September 2022.

But despite seeing a notable decline in the amount of monthly-mined Bitcoin, Hut 8 has remained committed to its hodl strategy, which has not been seen among too many miners in the industry.

“No Bitcoin was sold during the month,” Hut 8 said, stressing that the company owns one of the largest self-mined BTC reserves among publicly traded firms. “Total balance of Bitcoin in reserve was 9,366 on September 30 — 7,269 of which were unencumbered,” the firm added.

Hut 8’s latest BTC reserve expansion comes in line with the company’s long-term hodl strategy. Unlike many crypto miners forced to sell at least part of their mined Bitcoin holdings amid tough market conditions, including firms like Core Scientific and Riot Blockchain, Hut 8 has continued to steadily increase its Bitcoin stash. As of September 2022, Hut 8 had about 8,000 BTC in its reserves.

In the announcement, Hut 8 also mentioned the success of its ongoing merger deal with USBTC. Announced in February 2023, the transaction is expected to create a new Bitcoin mining business called Hut 8 Corp, or “New Hut.”

In September 2023, Hut 8 and USBTC obtained final approval from the Supreme Court of British Columbia for the merger deal.

“Progress toward completing our transaction with USBTC continues, and we’re grateful to our shareholders who demonstrated their overwhelming support by voting in favor of the merger,” Hut 8 CEO Jaime Leverton said. He added that the recent approval from the Canadian court allows the firm to “continue to advance us toward a new Hut 8,” which will have “highly diversified fiat revenue streams.”

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Harvey CHEN

1 Comment

  1. 11/16/2023

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