U.S. Bitcoin mining will see growth for years to come, and more

1. U.S. Bitcoin mining will see growth for years to come

Bitcoin (BTC) has once again been thrust into the spotlight of financial markets thanks to multiple spot BTC exchange-traded fund (ETF) applications being filed by some of the world’s largest asset managers, including BlackRock and Fidelity, but its price continues to struggle to overcome resistance at $31,500.

While bulls fight to push its price higher, one area of the Bitcoin ecosystem that is firing on all cylinders is the mining sector, which continues to strengthen as evidenced by the recent all-time highs in hash rate and mining difficulty.

According to data provided by Bitinfocharts, the hash rate for the Bitcoin network hit a new record high of 465.015 exahashes on July 8, while data from CoinWarz shows Bitcoin mining difficulty is currently at an all-time high of 53.91 trillion exahashes.

To get more insight into the current state of Bitcoin mining, Kitco Crypto spoke with Phil Harvey, Founder and CEO of Sabre56, a leading hosting provider and digital asset mining consultancy firm that recently announced a deal with Arkon Energy to consult on the Australian data center infrastructure provider’s newly acquired data center in Hannibal, Ohio.

While many in the crypto industry would like to memory-hole the events of the past two years, Harvey said they were “a transformative period for the Bitcoin mining industry” despite the fallout from the FTX collapse, which he said “amplified the cooling commonly observed after the bull run in crypto markets.”

“The industry is maturing and consolidating as professional players and institutional money enters the market,” he said. “The crypto winter accelerated this trend by weeding out unsustainable operations. The casualties were miners such as Core Scientific, Compute North and Celsius, who had bought overpriced machines during the bull run and over-promised on facility delivery.”

The companies that remain had “well-planned crypto mining operations,” which helped provide a buffer to “short- and mid-term Bitcoin price fluctuations,” he said. Sabre56, for example, has mining profitability data dating back to 2013 that shows “revenue is remarkably constant over cycles.”

“Mining players who are in it for the long haul and being reasonably capitalized did not stop their expansion during the crypto winter, quite the opposite,” he added.

Sabre56 is currently focused on building its own hosting facilities across Wyoming, Ohio, and Texas, and Sabre56 has the goal of “professionalizing the Bitcoin mining industry wherever it can,” he said.

Optimism in the mining industry

When it comes to sentiment within the U.S. Bitcoin mining industry, Harvey said there is a lot of optimism due to the rapid pace of progress. “Fortunately, the regulatory skirmishes between the SEC and Binance, Coinbase, and several other crypto companies do not overly impact the mining industry because it relies overwhelmingly on Bitcoin mining,” he noted.

“If anything, Bitcoin has been strengthened by the woes in other quarters of the crypto economy, since its status as currency is undisputed by the SEC, an opinion it has held for years,” he added. “Public expressions of Bitcoin bullishness by the likes of BlackRock’s Larry Fink fortify this advantage.”

As opposed to regulations pertaining to the buying and selling of cryptocurrencies, which are dealt with at the federal level, Harvey pointed out that “State and local rules, as well as cooperation with local governments and utility providers, determine whether projects can be implemented successfully. Federal rules are of little relevance to miners’ operations.”

“Wyoming and Ohio have been very welcoming towards new mining operations, and this goes from the state level – with ardent supporters like Wyoming’s Senator Cynthia Lummis (R.) – to stakeholders in city and county governments,” he said. “And while there have been attempts in the Texas House of Representatives to take a more restrictive stance, the symbiotic relationship between grid provider ERCOT and Bitcoin miners continues to make the state an attractive destination for mining operations.”

Since receiving $35 million in project financing to build tier-zero blockchain data centers in Wyoming and Texas, Sabre56 has completed the construction of two facilities in Wyoming, started construction of their Ohio facility, and secured space in Texas.

“In May, we finalized a multi-site, multi-year deal with GEM Mining, an institutional grade miner which, like Sabre56, is led by executives with a military background, and have since installed 4,510 of the company’s S19 Antminers in one of our new tier-zero blockchain data centers,” he said.

Outlook for Bitcoin mining in H2 2023 and beyond

When asked if he sees the trend of rising Bitcoin difficulty continuing, Harvey predicted mining difficulty will continue to break records as more computing power comes online. “This is nothing new,” he said.

“One of the ingenious mechanisms of Bitcoin is to incentivize efficiency gains in mining – making the blockchain more secure in the process – and ensuring mining infrastructure continues to be aligned with Bitcoin’s growing relevance in the global economy,” he said. “There really is no hard cap on difficulty and hash rate as chip technology and computing power grows more capacious. It is purely a function of the number of miners employed.”

And the number of miners employed will likely continue to increase for the foreseeable future as “Institutional investors moving into Bitcoin mining is the trend of the current market,” he said.

“We have had many conversations with large investors who stood on the sidelines for a while, watching closely how the market went from an amateurish minefield to a promising infrastructure industry,” he noted. “Now, many of these players are negotiating with proven operators and hosting providers to employ capital towards the construction of more efficient, professionally-led, and greener blockchain data centers.”

Harvey emphasized that it’s not only institutional money showing interest in Bitcoin mining, as utility providers and governments, particularly in the MENA region, are also “moving to take their share in this emerging branch of the economy.”

As for the future of Bitcoin mining in the U.S., Harvey said, “Blockchain data centers are the infrastructure behind Bitcoin (and some other digital assets), and as long as the crypto economy continues to grow and evolve, there will be demand for these types of data centers.”

“It is often overlooked how blockchain data centers, while purpose-built for Bitcoin mining computation, are in essence fungible,” he said. “Computing power is already an important commodity, and its relevance will only increase as we enter the commercialization of AI and high-performance computing applications across industries. With these drivers, solid industry growth is a safe bet for years to come.”

Sabre56 looks to support the continued expansion of the industry by offering consulting services to miners and investors, helping them source high-quality mining equipment, providing data center designs from technical drawings to the implementation of advanced heat managing systems, and providing assistance with finding optimal locations to build data centers.

The firm is also focused on developing positive relationships with the communities surrounding mining operations. Through its partnership with “Plan C/Plan Capacity,” Sabre56 will exclusively hire ex-US military veterans to staff their site operations. “We are poised to hire over 150 veterans over the next four months across Texas, Wyoming, Ohio, and other states – enabling them to thrive in their lives after service,” Harvey said.

2. With regulatory understanding, Bitcoin Mining can fuel Florida’s energy future

There are many reasons that businesses relocate to Florida, the welcoming regulatory and tax environments and the skilled and ready workforce among them. And these are certainly some of the reasons that many companies in the digital asset ecosystem — including Blockchain.com, Okcoin, Borderless Capital and BlockTower Capital — have moved out of such traditional tech regions as California, New York and the Pacific Northwest, for the friendlier sunshine and incentives of Florida.

But there’s another reason digital asset firms are looking to Florida: the Sunshine State’s reliable energy grids and its increasing leadership in sustainable energy, from solar energy to biomass electricity to nuclear energy. This is because one of the building blocks for some of the most popular forms of digital assets, particularly bitcoin, is proof-of-work mining, which can be an energy-intensive process, and Florida can fuel the innovation that Bitcoin requires.

Proof of work was first introduced in the early 1990s as a means to reduce email spam. The idea was to require computers to perform a small amount of work before sending an email in order to verify the message’s authenticity and deter spam. This work would be minimal for someone sending one-off emails, but it requires a lot of computing power and resources for users sending mass spam emails. The thought is that, if there is a significant cost associated with sending millions of emails, it will deter spammers.

Proof of work is a necessary part of adding new blocks to the Bitcoin blockchain and the energy consumption required at Bitcoin mining data centers to validate blocks is crucial to ensure the security of the blockchain. It also ensures that block production remains decentralized. There is no inherent advantage for those who may have started mining Bitcoin earlier, as the difficulty adjustment ensures that Bitcoin miners who started 10 years ago still compete on equal footing with a new miner that joins today.

IS BITCOIN MINING HARMFUL TO THE ENVIRONMENT?

It’s estimated that Bitcoin mining uses 140 terawatt-hours (TWh) of power per year and consumes about 0.22% of global energy. There are some, particularly within the executive branch, calling for extensive limitations on mining, if not a total ban, suggesting that the large energy use is harmful to the environment. This is short-sighted and wrong. Eliminating all Bitcoin mining will not put a meaningful dent in carbon emissions, and it could actually slow progress in transitioning this country to more renewable energy.

Simply put, Bitcoin mining can be an asset for energy development and modernizing our energy infrastructure. At the start of 2021, over 50% of the Bitcoin network’s computing power, otherwise known as its hash rate, was located in China and 13% was in the United States. By July 2021, China had banned Bitcoin mining, and the United States’ share of the network’s hash rate grew to 35%. Today, Bitcoin mining in the United States continues to grow, predominantly in states with regulatory-friendly environments and excess renewable power. In 2021, the efficiency of Bitcoin mining globally improved by 53%, and the percentage of the industry primarily powered by sustainable power improved from 37% to 59%.

HOW IS BITCOIN MINING MODERNIZING ENERGY RESOURCES?

Transitioning to greener energy sources requires significant investments in new energy technology. Proof-of-work miners serve as reliable base customers who provide consistent demand and revenue for utilities to build out clean energy infrastructure. An added benefit: They can power down to redeploy critical use of power elsewhere, almost instantly, something other high-demand industries simply cannot do.

For example, on occasions when customer demand spikes, Bitcoin miners can work cooperatively with utilities to curtail their demand. The power being used by proof-of-work miners flows back to the grid, giving retail consumers extra capacity in mere minutes with no adverse effects. No other industry that uses similar levels of energy — including other data centers, cloud service providers and manufacturing facilities — has the ability to do this.

An example of a state embracing these opportunities is Texas, where the electrical grid is operated by the Electric Reliability Council Of Texas, or ERCOT.

“Bitcoin miners have provided a valuable additional tool for ERCOT’s operators during tight supply conditions: a flexible load that can shut down so that needed electricity can flow to our most vulnerable customers,” said Brad Jones, ERCOT’s former CEO.

It’s also important to note that, even as Bitcoin mining has increased productivity over the past few years, the Bitcoin Mining Council has estimated that the global mining industry’s sustainable electricity mix is 58.5% and growing, making it one of the most sustainable industries in the world. This sustainability impact will only continue to grow over time as Bitcoin miners form partnerships with energy providers, utilities, communities and other groups to develop new energy capacities.

Florida is on the leading edge of the energy revolution. Our state’s solar industry is now in the top five in the nation, and our biomass electrical and nuclear energy industries continue to expand to meet consumer and business needs. Rather than studying the successes of Florida’s free market approach, the Biden administration, once again, is attempting to legislate through regulation and taxation. The executive branch, through offices like the White House Office of Science and Technology Policy Agencies, and its subordinate agencies, such as the U.S. Securities And Exchange Commission and the Commodity Futures Trading Commission (CFTC), are preparing to levy the heavy hand of the federal government in the name of “climate.”

Not only do many of these regulators lack the statutory authority to engage in environmental policymaking, but they are also ignoring the tremendous advancements the private industry has made and continues to make. Instead of stifling growth through burdensome regulation, we should let the market do what it does best: innovate.

3. Crypto Miner Argo Blockchain Raises £5.7M, Targets Expansion

Argo Blockchain, a London-based cryptocurrency mining company has successfully raised £5.7 million by issuing additional shares. The mining firm is listed in the London stock market, and recently announced that it would sell its shareholdings to raise a significant amount of funds.

The funds raised by selling the chunk of Argo shares will be utilized to clear the outstanding financial debt of the company. Argo Blockchain has revealed that the total amount to be paid to the creditors is £59.1 million.

The mining firm sold its shares at a discount of 14%, with each share worth 10 pence. The number of shares sold accounts for roughly 12% of the company’s market value before the sale. 

The decision of Argo Blockchain to sell additional shares has affected its stock prices. Argo Blockchain PLC (LON: ARB) stock lost more than 36.96% in the weekly time frame.

The company faced significant challenges due to the sharp decline in the value of Bitcoin (BTC) earlier this year, resulting in a net loss of £194.2 million for the full year.

In the July 19 trading session, NYSE: ARGO stock added 0.07% to its trading prices. However, the reason behind the surge is not clear and it is assumed that some giant investor might have invested a significant amount in the market. In the last trading session, buyers were overruling the sellers.

According to data from TradingView, approximately 420 million Argo Blockchain shares are free-floating and the remaining 51.725 million are closely held either by financial backers of the company or by the board of directors.

Is Crypto Mining Profitable in 2023?

For the past few months, crypto miners and especially Bitcoin miners have been struggling due to the volatility in the crypto industry and because of the tumbling prices of digital assets. It is important to note that prices and market volatility are not the only reasons for the slow demise of the asset mining industry.

Numerous analysts and crypto miners believe that harsh regulations and significant investments with inadequate revenue are some factors behind why miners are exiting the sector.

Since cryptocurrencies came into existence, China has been the center for crypto miners, but the region banned mining and other activities related to cryptocurrencies back in 2021.

After leaving China, miners shifted their workspace to several other regions like Texas and Kazakhstan. As per relevant data, the United States is still ranked as the leading nation where most miners are leading their operations. 

The debt of the BTC mining industry worldwide has been reduced from $4.5 billion to $6.00 billion at present. This amount was $8.00 billion in 2022. Mining difficulty reached a new high in June 2023, indicating increased competition. This surge resulted in a decline in profit margins.