Checking in on the state of Bitcoin mining.
We’ve talked about various mining narratives. You can read how energy concerns surrounding bitcoin often overlook the power of renewables. Last May, China’s bitcoin mining ban restructured the global mining landscape. This restructuring made the United States an attractive mining destination for displaced miners.
Since then, a lot has changed.
"We're seeing an institutionalization of crypto that's becoming more mainstream, more regulated, and I think if we can facilitate that in countries like the U.S., then I think that gives us global competitive advantage.” — Lamont Black, DePaul University Professor of finance and blockchain (source)
Mining’s Two Edges
Two aspects of mining have become clear in recent months:
Bitcoin miners are proving to be flexible. Bitcoin mining can be turned on or off instantaneously. In a moment of a power crisis where there is a short-term power shortage, simply switching off miners can be incredibly efficient. That is not the case with other large energy users, like oil rigs.
This situation played out in Texas. Last year during a winter storm, the energy grid was overwhelmed and left thousands without power. In anticipation of an early February storm this year, the Texas Blockchain Council, made up of mining companies throughout the state, shutdown operations to reduce loads and create needed capacity.
In addition to Texas, rural locations like Kearney, Nebraska and upstate New York are now common mining sites. Why? Cheap power, land, and renewable energy:
Texas has some of the cheapest access to power in the United States;
Nebraska offers cheap, available land to operate a mining center away from civilization;
New York’s cold climate, industrial infrastructure, and cheap energy (the state is the 3rd-largest producer of hydroelectric power) make it ideal for mining;
Georgia has approved updates to the state’s energy laws, offering attractive low power prices and availability of solar power.
Bitcoin mining is constantly finding new use cases, but the ability to (1) turn the miners on and off instantaneously, and (2) capture excess energy from remote parts of the country have proven to many that there is a place for the technology in the United States.
An In-Depth Look: Mining and Price
Since China’s mining ban, the total amount of computing power — measured as a hash rate — has fully recovered and risen to new highs, visible in the table below.
The increase in computing power on the network has made mining a more expensive endeavor. The average bitcoin mining cost — a measure of the estimated average cost to mine a single bitcoin — is rising to near the current market price of a bitcoin. The market price of Bitcoin sits around $39,000, just 16% higher than the average bitcoin mining cost of $33,500, according to CoinMarketCap data. (This number can vary widely based on mining technology and energy costs.)
In this situation, miners must make key decisions around machine operations, what to do with the mining rewards, and more.
“If history repeats itself, the smaller the gap between market value and mining cost, the more attractive bitcoin becomes as an investment at a discount.” (Tweet from @CoinMarketCap)
Resources:
For a beginner’s guide to bitcoin mining, see Kraken’s mining guide.
Read more about the Texas bitcoin mining preventative weather-related shutdown here.
CNBC’s report on how states are attracting Bitcoin miners.
➡️ About FirstWatch Crypto ⬅️
FirstWatch Crypto was started by Dan McGlinn (@DigitalDanMcG) and John "Blaize" Hrabrick (@blaizebitcoin) who have been investing in the space for a combined 8 years. FirstWatch Crypto is on a mission to simplify the crypto investment landscape.