Could the difficulties of Bitcoin miners spark a 'death spiral' for the BTC price?

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Could the difficulties of Bitcoin miners spark a ‘death spiral’ for the BTC price?

Could the difficulties of Bitcoin miners spark a 'death spiral' for the BTC price?
1658136832 18 Jul / 09:33

However, the usage of renewable energy and the oil and gas industry's rising interest in Bitcoin are advantages in the long run.

A post by @PricedinBTC on July 9 on the "cost to mine Bitcoin" in the United States garnered the crypto community's attention, especially in light of the recent headlines generated by BTC miners. The crypto bear market and rising energy prices have created a perfect storm in the mining industry, causing some businesses to lay off workers and others to postpone capital investments. Some even expressed worries that Bitcoin miners may enter a "death spiral."

Raymond Nasser, CEO of Arthur Mining, a professional mining firm operating in the United States, told Cointelegraph that his company's margins do not fully align with @PricedinBTC's statistics.

The present capacity of Arthur Mining is 25 megawatts (MW), and the firm concentrates on renewable energy sources. One may disregard their statistics because publicly traded firms such as Marathon Digital Holdings have 300 MW plants. Still, they rely on regular grid electricity – even if some energy comes from hydroelectric facilities.

The smaller-scale mining activities employ discounted flare and stranded gas from the oil and gas sector to attain the most acceptable environmental, social, and governance (ESG) policies. Their key is mobile Bitcoin mining facilities that utilize greener, more efficient, and more profitable energy sources than conventional alternatives.

Regarding the $16,000 mining production cost, Nasser stated: “These diagrams are extremely subjective. The biggest new projects in the industry are looking for off-grid solutions, and this diagram represents some of the most expensive on-grid energy costs used in urban areas. Our all-in energy costs are lower than $0.02 kWh in two different U.S. States.”

According to QuickElectricity, commercial power costs per kilowatt-hour (kWh) in Idaho, Utah, Virginia, Texas, Nevada, North Dakota, Nebraska, and Oklahoma varied from $0.08 to $0.09 in March 2022.

One of the strengths of the Bitcoin network is its emphasis on efficiency, which means that the labor-intensive manufacturing process will constantly seek the lowest operational costs and gravitate toward those. Not only is ASIC mining equipment transportable, but it is also adaptable to alternative energy sources. These machines may, for instance, be put in containers, transported to offshore oil and gas buildings, and operate with oscillating power sources.

Upstream Data, a Canadian producer of Bitcoin mining data centers, now constructs portable Bitcoin mining equipment and infrastructure for natural gas without requiring pipes or midstream services. After deploying more than 180 of these data centers, it is evident that this practice is becoming commonplace.

CNBC examined the use of renewable energy in Bitcoin mining earlier this year. So far, Giga Energy Solutions, a natural gas Bitcoin mining startup, has inked contracts with over 20 oil and gas companies, four of which are publicly listed.

Regardless of the energy source, miners have been experiencing financial difficulties. In addition to falling Bitcoin values, funding has been a significant obstacle for the business. Industrial-scale Bitcoin miners owe over $4 billion in loans. Some have been compelled to liquidate their BTC holdings to fund capital and operating expenses, according to a report published by Cointelegraph on July 7.

However, not all mining enterprises have access to conventional long-term bank funding. Thus, these companies developed a debt structure with more risk by giving their miners and infrastructure security. As the price of Bitcoin fell, so did the cost of mining equipment, aggravating their financing conditions when they needed it the most.

Rich Ferolo, an analyst at Blockware Solutions, voiced concern to Cointelegraph on June 28: “For the s17s [ASIC miner], at $0.07 per kilowatt, BTC needs to be at around $18,000…. you’re going to see a lot of capitulation, insolvency, and excess machines… It’s more about the survival of the fittest.”

As said by Nasser: “We have always mitigated our convexity exposure by immediately reinvesting or liquidating our bitcoin balances weekly. We understand that with 70%+ ebitdas and high efficiency in most cases, being overly greedy by holding Bitcoin reserves can break your operation and cost you jobs, like we have seen in the past month”.

The sector has a problem, but this may reflect its infancy. However, the impact of miners selling more Bitcoin than they have mined in the last several months may be exerting additional downward pressure on the BTC price.

This never-ending cycle supports the “death spiral” theory. Still, this oversimplification fails to account for the fact that miners will shut down their machines below a specific price threshold and that many will relocate to regions with lower electricity costs or even seek renewable energy sources.

This danger is amplified due to Bitcoin’s difficulty adjusting, which boosts active miners’ profitability. In conclusion, Bitcoin mining does not represent a systemic risk to the BTC price.

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