After recovering from a near-death experience during the recent cryptocurrency winter, Bitcoin miners are back in survival mode—spending billions on equipment and building on their legacy before updates to the digital currency’s code threatened revenue streams. Record speed consumes energy.
The surge in activity was triggered by gains in the world’s largest cryptocurrency, driven by the launch of a newly launched spot Bitcoin exchange-traded fund and the quadrennial halving event scheduled for April. Bitcoin has soared more than fourfold since plunging 64% in 2022 amid a series of crypto industry bankruptcies and scandals.
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Thirteen top mining companies have placed orders for specialized computers worth more than $1 billion since February 2023, according to data compiled by TheMinerMag based on public documents. CleanSpark Inc. and Riot Platforms Inc. led the group, spending $473 million and $415 million respectively on rigs.
The machines were purchased to help miners improve operational efficiency and lock in favorable electricity prices. Miners are always looking for cheap electricity as they use energy-hungry computers to verify transaction records on the blockchain to earn rewards in the form of Bitcoins.
“Scale matters because you get better prices, larger energy transactions and lower development costs,” said Asher Genoot, CEO of Hut 8 Corp., one of the largest publicly traded Bitcoin miners. “When you When you have scale, you have more margins and growth margins and you can cover huge costs.”
All of this activity is driving miners to consume energy at record rates. Last month, miners consumed a record 19.6 gigawatts of electricity, up from 12.1 gigawatts in the same period in 2023, according to Coin Metrics estimates. This is equivalent to the electricity capacity needed to power approximately 3.8 million homes in Texas, home to many mining operations.
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“If we assume that electricity consumption is consistent throughout the month, we can multiply by 696 (24 hours times 29 days) to get that the energy consumed by the Bitcoin network last month was 13.64 TWh (terawatt hours),” Coin Metrics Senior Solution said scheme engineer Parker Merritt. The Cambridge Center for Alternative Finance estimates that Bitcoin mining consumed 121 terawatt hours of electricity in 2023, similar to Argentina’s usage.
Bitcoin miners were among the best-performing stocks last year, allowing companies to raise capital by selling newly issued shares through an “on-market” offering program. In addition, the value of Bitcoin held in miners’ accounts is also rising. On March 8, Bitcoin hit an all-time high of over $70,000.
Zachary Bradford, CEO and president of CleanSpark, said the increase in Bitcoin prices “allowed most miners to remain profitable,” adding that his company achieved this at a lower price profit.
Since December 2022, shares of Marathon and CleanSpark are up nearly 600% and 900%, respectively. The two companies, along with Riot, Hive Digital Technologies and Iris Energy Ltd., have raised more than $2 billion through stock sales since June 2023, when the cryptocurrency market began to rebound, according to TheMinerMag.
“The most efficient miners will benefit the most as rising Bitcoin prices drive more profits,” Bradford said.
Miners are constantly competing for rewards, as the network only awards rewards to the first person to successfully process a unit of data. The fierce competition is reflected in mining difficulty, which is a measure of the computing power required to mine Bitcoin. The bi-weekly indicator has seen some of its biggest increases, pushing the numbers to new all-time highs multiple times since January 2023, according to btc.com.
The more computing power a miner has, the greater the likelihood of receiving rewards. But rewards will decrease after halving, further limiting the supply of Bitcoin.
Ethan Vera, chief operating officer of cryptocurrency mining service provider Luxor Technology, said: “As the halving arrives in mid-April, miners’ revenue will drop significantly, forcing some of them into negative profits.” “Some miners will capitulate, And many miners will find creative solutions to stay profitable.”
Danger of scaling
Rapid expansion comes with risks, as seen in the last cryptocurrency bull run in late 2021. A group of mining companies went public and raised billions of dollars from equity and debt markets. Companies are borrowing funds in record amounts, and when the market crashes in 2022, miners are also in trouble. Core Scientific Inc. and Compute North, two of the largest companies at the time, declared bankruptcy, and other miners warned of a liquidity crunch. Core Scientific emerged from bankruptcy and re-listed in January.
“There are dangers when you scale up and start compromising on energy costs, machine costs and some return costs,” Genout said. “That’s why so many companies are going bankrupt in 2022, because people will do whatever it takes to expand.”
Phil Harvey, CEO of Sabre56, a major Bitcoin mining operator based in Dubai, said he knows a miner who bought $350 million or $400 million worth of machines this year but had nowhere to put them. .
The company “doesn’t have the ability to launch them,” he said. “This is not unusual.”
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