As Bitcoin mining becomes less profitable, energy companies spot opportunity
With the price of Bitcoin way off its US$68,990 peak, and energy prices soaring, crypto mining has become less profitable than it was just a few months ago. Previously, Bitcoin miners could hope for up to 90% profit margin, but nowadays the spread has narrowed to 70%, while the next Bitcoin block reward "halving" scheduled for 2024, is fast approaching. This has created a perfect storm for miners and an opportunity for energy companies, reports Bloomberg.
Energy holdings are now among the fastest growing Bitcoin mining operations, with two of them - TeraWulf and Stornghold - in the top five miners by megawatts of extra capacity added so far this year. TeraWulf, which counts celebrities like Gwyneth Paltrow among its investors, is the nimble Bitcoin mining offshoot of Beowulf Mining Plc, an energy producer with three decades of experience. Its CEO Paul Prager said they got the idea from their client Marathon Digital Holdings Inc. that runs big crypto mining center in Montana:
Energy companies tend to be very conservative by nature and they are often regulated. We are early adopters because we had a front-row seat in our partnership with Marathon... It is not only the efficiency from the commercial perspective but it is from a risk perspective where we are better built to handle the downside. When a transformer goes out on site, you are not calling a third party service firm to come in to repair it, putting in a change order, paying them overtime and hoping that in two to three weeks that transformer is repaired.
According to the report, when energy companies themselves become Bitcoin producers instead of just providing the energy to a third-party mining operation, they climb back to the 90% margin that miners enjoyed in the heyday of the crypto craze last fall. "If you are buying power from a producer and paying a third-party operator to manage the data center, you are going to have lower margins than those that do it themselves," adds Gregory Beard, the CEO of Stronghold.
We couldn't agree more with @GwynethPaltrow (to @NYTimes) as to why she's investing in TeraWulf & why we're excited about a carbon-free future. "A key component of the next wave of technology has to be that it's solving a problem for the environment."https://t.co/60aHs7NI7U— TeraWulf (@TeraWulfInc) December 13, 2021