Bitcoin miners are consuming energy at an unprecedented rate amid the surge in cryptocurrency prices

Following a close call during the previous crypto winter, Bitcoin miners are now in a fight for survival, investing billions in equipment and consuming energy at unprecedented levels in anticipation of an upcoming update to the digital currency’s code that could impact their profits.

The surge in activity is due to the rise of the world’s largest cryptocurrency, fueled by recently launched Bitcoin exchange-traded spot funds, and a quadrennial event called the halving, which is scheduled to take place in April. Bitcoin has more than quadrupled since plunging 64% in 2022 amid numerous bankruptcies and scandals in the crypto industry.

As of February 2023, 13 of the largest mining companies have ordered more than $1 billion worth of supercomputers, according to public filing data from TheMinerMag. CleanSpark Inc. and Riot Platforms Inc. led the pack, spending $473 million and $415 million respectively on equipment.

Machines are being acquired to help miners improve their operations and lock in low electricity prices. Miners are constantly looking for cheap electricity as they use energy consuming computers to validate blockchain transactions and earn rewards in the form of Bitcoin.

“Scale matters because you can get machines at better prices, bigger energy contracts and lower development costs,” said Asher Genoot, CEO of Hut 8 Corp., one of the largest publicly traded Bitcoin miners. “When you have scale, you have more margin and growth profits and you can cover the big costs.”

All the activity causes the miners to use up energy at a record pace. Coin Metrics estimates that miners used a record 19.6 gigawatts of power last month, up from 12.1 gigawatts in 2023. That’s equivalent to the electrical capacity of about 3.8 million homes in Texas, where many of the mining operations are located.

“If we assume that power consumption was consistent throughout the month, we can multiply by 696 (24 hours times 29 days) to get 13.64 TWh (terawatt hours) of energy consumed by the Bitcoin network over the past month,” said Coin Metrics Senior Solutions Engineer Parker Merritt. Bitcoin mining consumed 121 terawatt hours of electricity in 2023, the Cambridge Center for Alternative Finance estimates — the same as Argentina’s use.

Bitcoin miners were some of the best-performing stocks last year, allowing companies to raise capital by selling new shares through “at-the-market” offerings. This is in addition to the rising value of Bitcoin on the miners’ ledgers. Bitcoin hit a record high of over $70,000 on March 8th.

Bitcoin’s rising price “allows most miners to stay profitable,” said Zachary Bradford, CEO of CleanSpark, adding that his company had to be profitable at lower prices.

Marathon shares are up nearly 600% and CleanSpark 900% since December 2022. According to TheMinerMag, both companies, along with Riot, Hive Digital Technologies and Iris Energy Ltd. raised more than $2 billion by selling shares after June 2023. , when the crypto market started to recover.

“The most efficient miners will benefit the most as Bitcoin’s price increases push even more profits into the bottom line,” Bradford said.

Miners are constantly competing for the reward because the network only gives it to the first ones who manage to process a unit of data. The fierce competition is reflected in the mining difficulty, which measures the amount of computing power needed to mine Bitcoin. According to data from Btc.com, the two-week-long gauge has risen from the largest, pushing the number to all-time highs several times since January 2023.

The more computing power a miner has, the more likely they are to receive a reward. But this reward will decrease after the halving, further limiting the supply of Bitcoin.

“With the mid-April halving, miners’ income will drop significantly, forcing some of them into negative margins,” said Ethan Vera, COO of cryptomining services provider Luxor Technology. “Some miners give up, while many find creative solutions to stay profitable.”

Risk of scaling

Rapid growth comes with risks, as seen in the last crypto run in late 2021. A flood of mining companies went public and raised billions of dollars in the stock and bond markets. Companies borrowed record amounts of money, and when the market crashed in 2022, so did the miners. Two of the largest companies at the time, Core Scientific Inc. and Compute North, declared bankruptcy as other miners warned of a liquidity crisis. Core Scientific has since emerged from bankruptcy and relisted in January.

“There’s a risk that you scale and start compromising on energy costs, machinery costs and certain repayment costs,” Genoot said. “That’s why so many companies went bankrupt in 2022 because people scaled at any cost.”

Phil Harvey, CEO of Sabre56, a major Bitcoin miner based in Dubai, said he knows a miner that has $350 or $400 million worth of machines it bought this year but has nowhere to put them.

The company doesn’t have a chance to deploy them, he said. “It’s not uncommon.”