Last northern hemisphere summer, a flurry of public crypto-mining companies sold large amounts of their coin reserves amid a Texas heat wave in the US that forced a drop in production and a number of crypto industry meltdowns. Some of the miners have been running with thin margins, Harper said. But more heat waves and bitcoin’s preprogrammed event, the “halving”, are likely to further compress the margins.
The miners in Texas shut off their mining machines amid record power demand last month. The Lone Star state, which has become a crypto-mining hub thanks to its cheap energy and business-friendly regulations, has seen power cost surging.
While some of the miners are able to hedge against the rising prices by purchasing power in advance and reselling it back to the grid with a premium, others have to unplug their energy-intensive operations without any compensation.
The curtailment has already been reflected on the mining difficulty, which is a measure of computing power to mine bitcoin. The bi-weekly figure had been on a steady rise and hit an all-time-high in mid June but it saw a 3.3 per cent decrease in the latest cycle, according to data from btc.com.
Bitcoin miners are also in a race to survive the next halving in 2024. The update cuts mining rewards, the new tokens issued to compensate miners’ work that validate transaction data on the network, in half every four years until the token reaches its 21 million cap in about 2140. Mining rewards, which is the main source of revenue for miners, will be down from 6.25 to 3.125 bitcoin for a miner that successfully processes a certain amount of data.
Following the halving, if some miners’ cash flow turns negative, they may have to further finance their operations with cash stowed on their balance sheet, said Matthew Kimmell, digital asset analyst at asset management and research firm CoinShares.
The flow data tracking transactions between miners and exchanges is one of the best proxies for sales of mined coins, but it has limitations. The miners that send their tokens to exchanges may not eventually sell them and the flow data does not include all miners and exchanges.
Bloomberg
Bloomberg
