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Forced selling from Bitcoin miners raises concern about BTC price, but the utilization of renewable energy and therefore the oil and gas industry’s growing interest in BTC are long-term positives.
A July 9 post by @PricedinBTC on the “cost to mine Bitcoin” within the U.S. gathered the crypto community’s attention, especially considering the recent headlines that BTC miners have made. The crypto securities industry and growing energy costs have caused an ideal storm for the mining sector and this has led some companies to put off employees et al to defer all capital expenditures. Some went as far as raising concerns about Bitcoin miners hitting a “death spiral.”
In bear markets like this, inevitably a Bitcoin critic comes out and says that Bitcoin will soon collapse from a “miner death spiral”, meaning that miners will go offline because it is not profitable to run their operations, and then Bitcoin’s hash rate will fall, causing its…
— Cory Klippsten (@coryklippsten) July 6, 2022
However, Raymond Nasser, the CEO of Arthur Mining, a knowledgeable company operating within America told Cointelegraph that their margins don’t fully concur with the info from @PricedinBTC.
Cost to mine 1 #bitcoin in every U.S. state 👇 pic.twitter.com/JKug0KtGVq
— Priced in ₿itcoin ∞/21M (@PricedinBTC) July 9, 2022
Arthur Mining’s current capacity is 25 megawatts (MW) and also the company focuses on environmentally friendly energy sources. At first, one could dismiss their numbers as listed companies like Marathon Digital Holdings have 300 MW plants, but these depend on the standard grid energy — whether or not a little of the ability originates from hydroelectric plants.
To achieve the most effective environmental, social and governance (ESG) practices, the smaller scale mining operations utilize undervalued flare and stranded gas from the oil and gas industry. Their secret is mobile Bitcoin Mining facilities, tapping greener, more efficient and more profitable energy sources compared to traditional solutions.
Regarding the $16,000 cost for miners, Nasser said:
“These diagrams are extremely subjective. the largest new projects within the industry are trying to find off-grid solutions, and this diagram represents a number of the foremost expensive on-grid energy costs utilized in urban areas. Our all-in energy costs are below $0.02 kWh in two different U.S. States.”
Electricity costs have doubled within the past year
Data from QuickElectricity shows that from March 2022 commercial electricity costs per kilowatt/hour (kWh) ranged from $0.08 to $0.09 within the U.S. state of Idaho, Utah, Virginia, Texas, Nevada, American state, Nebraska and Oklahoma.
One of the strong points of the Bitcoin network is that it prioritizes efficiency, meaning, the labor intensive production process will always search out the bottom operational costs and shift toward that. Asic Mining equipment is mobile, but more importantly, there’s optionality for other energy sources. for instance, these machines may be installed in containers, shipped to offshore oil and gas structures, and work with oscillating power sources.
To date, Upstream Data, a Canada-based manufacturer of Bitcoin mining data centers, builds portable Bitcoin mining equipment and infrastructure for fossil fuels without the requirement for any pipelines or midstream facilities. After deploying over 180 of those data centers, it’s becoming clear that this activity is becoming mainstream.
Earlier this year, CNBC explored how renewable energy is employed within the Bitcoin mining process. To this point, Giga Energy Solutions, a gas Bitcoin company, have signed deals with quite 20 oil and gas companies, four of which are publicly traded.
Higher interest rates and Bitcoin’s collapse is hurting BTC miners
Regardless of the energy source, miners are battling their balance sheets. Besides the impact of lower Bitcoin prices, financing has been a serious hurdle across the industry. A July 7 Cointelegraph report examined how industrial-size Bitcoin miners owe some $4 billion in loans and a few are forced to liquidate their BTC holdings to hide capital and operational costs.
But not every company has access to traditional long-term bank financing. Thus, those firms created a riskier debt structure by offering their miners and infrastructure as collateral. As Bitcoin price plunged, so did the mining equipment prices, and successively, worsening their financing conditions after they needed the foremost.
Blockware Solutions analyst Rich Ferolo expressed his concerns to Cointelegraph on June 28:
“For the s17s [ASIC miner], at $0.07 per kilowatt, BTC must be at around $18,000…. you’re visiting see plenty of capitulation, insolvency, and excess machines… It’s more about survival of the fittest.”
According to Nasser:
“We have always mitigated our convexity exposure by immediately reinvesting or liquidating our bitcoin balances on a weekly basis. We understand that with 70%+ ebitdas and high efficiency in most cases, being overly greedy by holding Bitcoin reserves can break your operation and value you jobs, like we’ve seen within the past month”.
The mining industry includes a problem, but its impact is restricted
The industry clearly features a problem, but this might simply be a mirrored image of its infancy. Still, the impact of miners selling more Bitcoin than they need mined over the past number of months could also be creating additional pressure on the worth of BTC.
This never-ending cycle reinforces the “death spiral” theory, but this oversimplification fails to think about that miners simply finish off their machines below a particular price threshold which many will locate to areas with cheaper electricity costs or perhaps search out renewable options.
Although lowered mining activity effectively poses a short-term risk because the network becomes less secure, this risk is overstated because Bitcoin’s difficulty adjustment increases operational miners’ profitability. In short, the Bitcoin mining business doesn’t pose a systemic risk for BTC price.
The views and opinions expressed here are solely those of the author and don’t necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. you ought to conduct your own research when making a call.
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