What business strategy for bitcoin miners?

The bitcoin mining industry continues to face a tough year as the price of bitcoin (BTC) hovers around $20,000, along with rising energy costs in North America and Europe. Regulators have recently begun to crack down on cryptocurrency mining. A recent report by the Bitcoin Mining Council (BMC) has indeed shown that bitcoin’s energy consumption has increased by 41% year-on-year. As a result, some cryptocurrency mining companies have been forced to sell equipment, while others have filed for bankruptcy altogether.

But this has not been the case for some miners, especially those focused on clean energy solutions and a strategic approach. For example, in September, the cryptocurrency mining company CleanSpark announced an agreement to acquire the Mawson bitcoin mining facility in Sandersville, Georgia for $ 33 million. Cryptocurrency mining company White Rock Management has recently expanded its mining operations to Texas.

Why are some bitcoin miners successful in a bearish market?

Matthew Schultz, executive chairman of CleanSpark, told Cointelegraph that he sees mining as a unique way to reduce energy costs when it is mined for reasons other than making a profit. According to Schultz, this attitude has set CleanSpark apart from other mining companies. “Bitcoin mining is a potential solution to create more opportunities for energy development. “, he declared.

Schultz said CleanSpark partners with cities in the United States, such as Georgia and Texas, to purchase excess energy. For example, he noted that CleanSpark works with local districts in Georgia that receive power from the Georgia Municipal Electric Authority.

“Essentially these cities are a utility provider. They make a margin on every kilowatt hour we buy to run our mining operations. But we buy so much energy that it drives up energy costs for the communities we work with. Our goal is to have a positive impact on cities by lowering energy costs. “, he declared.

Schultz also revealed that CleanSpark has formed a partnership with energy company Lancium to support their data center in West Texas by purchasing additional renewable energy to create grid stability. As a result, Schultz shared that CleanSpark has half a billion US dollars in assets on its balance sheet and less than $20 million in debt, as well as backing from investors like BlackRock and Vanguard. Schultz believes that the cryptocurrency market has affected CleanSpark differently compared to other cryptocurrency miners.

For example, he noted that when one bitcoin was worth $69,000 a year ago, many miners were discussing their plans to own BTC. “These miners have also made huge promises to companies like Bitmain regarding the future delivery of mining devices. “, he said. Still, according to Schultz, CleanSpark did a thorough analysis of the number of mining rigs ordered last year, looking at future energy projections. He said :

“We concluded that rather than sending a deposit for mining equipment to vendors last November and only receiving that equipment now, we considered the possibility of an oversupply of equipment and an increase in energy costs. So, we sold bitcoins when they were in the $60,000 range, and instead invested the proceeds from the sale in infrastructure. »

Not only did this allow CleanSpark to acquire its new mining facility in Sandersville, Georgia, but Schlutz also noted that the company currently buys bitcoin mining devices at a very low rate. “We buy rigs for $17 per terahash which was $100 per terahash a year ago. »

While some miners have been forced to sell their equipment, new and used mining rigs are being sold at below-market prices, creating buying opportunities for companies like CleanSpark.

Scott Offord, owner of Scott’s Crypto Mining – a service that provides new and used mining equipment, as well as mining training courses – told Cointelegraph that prices for mining rigs are now very cheap, partly due to a lack of demand due to the low. bitcoin price. Offord also said that much of the used miners he currently sells comes from debt shelters. He said :

“During the last bull run, you couldn’t get miners without a 6 month delay. It is the opposite now, because not many miners are taking advantage of it. Usually bitcoin miners dump their hardware because the equipment is old and something newer is on the market, but now it seems people are selling because they need cash. »

Offord also indicated that he sees a lot of new mining equipment hitting secondary markets. “Many new generation Sermons are resold. For example, things like the S-19s, which are some of the most efficient miners in the world today. “, he declared.

In terms of pricing, Offord explained that cryptocurrency miners could be able to buy a new Antminer S-19j pro for around $20 per terrahash. “This same machine would have cost three times as much with a delivery time of three months a year ago. “, he said.

Echoing Offord, Andy Long, managing director of bitcoin mining firm White Rock Management, told Cointelegraph that miners who sell hardware usually do so to cover debt payments for hardware purchased when prices were higher students. “Miners now buy hardware with large financial flows, and will continue to use it to secure the network. “, he declared.

According to Long, the bear market did not affect White Rock Management’s operations in the United States. He says his facility in Texas operates completely off the grid. “White Rock’s US operations are powered by flared natural gas, and our mining operations in Sweden are 100% hydroelectric powered. »

Bitcoin miners are rethinking their trading strategies

As miners like CleanSpark and White Rock Management continue to grow, others may have to rethink their business strategies. Elliot David, head of climate strategy and partnerships at the Sustainable Bitcoin Protocol (a certification protocol for sustainable bitcoin mining), told Cointelegraph that he thinks conditions for miners will get worse before things get better. “Miners who want to survive long-term will have to change their strategy. “, he declared.

In fact, some miners make adjustments. For example, Jonathan Bates, CEO of cryptocurrency company BitMine, recently said in a press release that due to the sharp drop in prices for mining rigs, the company will focus only on self-mining rather than accommodation for others.

“Given the sharp drop in ASIC prices, we believe that focusing on self-mining is a better use of our data center equipment and a better use of company capital right now. “, he confirmed. He added that the company plans to “pursue alliances and partnerships where our infrastructure equipment can be paired with ASIC miners valued at current prices.”

The press release also noted that on October 19, Bitmine entered into a purchase and hosting agreement with The Crypto Company (TCC), a publicly traded blockchain company.

Under this agreement, Bitmine agreed to buy back certain ASIC miners previously sold to TCC and to purchase additional ASIC miners also owned by TCC. Bitmine will also terminate the hosting agreement it established with TCC.

Specifically, Bitmine sold 70 Antminer T-17s to TCC for $175,000, as well as 25 Whatsminers for $162,500, for a total purchase of $337,500 in February of this year.

At the same time, Bitmine and TCC entered into a hosting agreement under which Bitmine agreed to host the miners, as well as other miners associated with TCC.

Due to the current conditions, it was noted that Bitmine will accept all 70 Antminer TY-17s back for a warranty credit of $175,000. Bitmine will also buy the 25 Whatsminer for $62,500 and the 72 Antminer T-19 from TCC for $144,000. This represents a significant drop in price from when these units were first sold.

In 2021 – at the height of the cryptocurrency bull run – Bitmine entered into an agreement with a telecommunications company based in Trinidad and Tobago. This agreement allows Bitmine to co-locate up to 125 800 kilowatt containers to host miners across 93 possible locations. Bitmine can co-locate containers at its own pace, paying a fixed amount per container, as well as the electricity costs incurred by its containers.

When the agreement was signed, Bitmine reported that the expected electricity rate for the hosting containers was $0.035 per kilowatt-hour. This amount was based on the rate currently being paid by the telecommunications company.

In October of this year, Bitmine completed the installation of its first hosting container in Trinidad. However, before starting operations, Bitmine reported that the telecommunications company informed them that the power company would not honor the existing agreement and instead ​​the tariff would be around 0.09 $ per kilowatt hour. Although the telecommunications company contested the decision, Bitmine chose to delay the installation of additional containers in Trinidad until the dispute was resolved.

The future of cryptocurrency mining

Given the recent changes made by miners, David believes that the cryptocurrency mining industry is heading for a transformation. “Miners will have to diversify their sources of income. “, he declared. With this in mind, he explained that there is increasing interest from clean energy miners who want to work with the Sustainable Bitcoin Protocol to ensure sustainable mining practices as a way to be more financially resilient.

Reflecting this, Offord stated that miners are more concerned about their impact on the environment. “Miners are looking for opportunities in places where there are gas flares that need to be mitigated, or where biofuel is created from agricultural waste. Miners are not only focused on building a bitcoin mining system, but they want to build something sustainable that can be carbon negative. »

In addition to sustainability, David pointed out that regulations are becoming more important than ever for cryptocurrency miners. He noted that this is especially true in the United States. For him, indeed:

“The industry in the United States knows that the various levels of government may intervene if it does not regulate itself. I talked to several decision makers and staff, and in a crisis, the bitcoin mining industry is probably the first target. »