Energy Consumption Concerns Quashed as US States Show Hospitality to Private Crypto Miners

The crypto mining industry has endured several setbacks, but the conversation around power consumption has remained contentious. In a fireside chat during the World Economic Forum 2023 conference held at Davos in January, Hut 8 CEO Jaime Leverton remarked that Bitcoin miners have been pushing the frontiers of innovation by using waste energy for power. She specifically observed that miners have increasingly turned to waste methane, landfills, and flare gas to generate energy.

The convenience for these new operations is that they can be located where waste energy is being created, as they do not necessarily require a connection to the grid. Dwelling on mining developments, the Hut 8 executive also noted that Bitcoin miners are starting to develop in rural areas in Africa and are now funding themselves. Worth noting, Leverton is a founding member of the Bitcoin Mining Council (BMC), which reported in January that more than half of Bitcoin production is mined using renewable energy sources.

Crypto proponent asserts Bitcoin’s sustainable energy use is above 50%

Speaking of sustainability, crypto proponent David Batten recently demonstrated that Bitcoin has grown its sustainable energy mix by 6.2% per annum since January 2020. China’s decision to ban crypto mining reportedly played a big factor in reaching the current levels of sustainability, but according to the Cambridge Centre for Alternative Finance (CCAF), about 20% of Bitcoin’s hashrate between September 2021 and January 2022 came from underground operations in the country.

A September 2022 research from the Cambridge Bitcoin Electricity Consumption Index (CBECI) suggested that Bitcoin’s emissions intensity has been growing. In fact, about 62% of Bitcoin’s energy mix was from fossil fuels, a claim that Batten vows against. He said that, in contrast, emissions have been edging lower for the past three and a half years. Batten argued that Bitcoin stands out from other markets because it reduces its emissions as its market capitalization grows, which he compared to GDP.

He added that as more companies adopt cleaner solutions, this trend will continue to gain significant traction. Another is the CCAF’s reporting that Bitcoin uses only 37.6% sustainable energy, which did not take into account some other sustainable factors, among them off-grid sustainable Bitcoin mining. All exclusions included, the complete sustainable mining estimate was 52.6%, not so far from the BMC’s reported 58.9%.

To learn more about Bitcoin, check out our Investing in Bitcoin guide.

There’s been hurting, but there are signs of recovery

Reminiscing the brighter day in the fireside chat, Leverton recalled how as many as 40 Bitcoin mining companies went public in North America. This, she acknowledged, was only during the high times of a two-year period that has been full of swings. The Hut 8 chief is, however, optimistic the shake-up that hit the industry last year has started to wear off. Leverton averred that those who over-leveraged their investments have struggled, but now it is a period of consolidation in the market, where companies are diversifying their portfolios.

Sabre56 completes $35 million raise to fund hosting site

Digital asset management consulting firm Sabre56 disclosed this week a $35 million raise, mostly from private participants, to fund a hosting site it is building. The firm intends to complete the 150 megawatts (MW) project by the end of the year with clients comprising companies and individuals it has close associations with already lined up. The project’s initial phase will comprise four already under-construction sites in Wyoming and Texas, boasting a total capacity of 115 MW.

Though the firm didn’t share specifics on the price of the fixed-rate electricity contracts it is tied under, CEO Phil Harvey said it will have flexible but competitive pricing ($0.068-$0.072 kWh) depending on terms like contract length and machines involved. The company further plans to scale its capacity after 2023, adding 150 MW annually for the next four years. This significant investment will be funded by returns from the operations it will run once it has launched the hosting business.

Luxor Mining sees opportunity in trending Ordinals

In other news, Luxor Mining announced on Monday it acquired OrdinalHub, the group behind Ordinals, the Bitcoin-based NFTs which have continued drawing mixed reactions from the crypto community. The group supporting Ordinals holds that the inscriptions offer new use cases for Bitcoin – a view contradicted by those who argue that the latter deviates from the original peer-to-peer cash system vision.

The movement recently extended to the Litecoin blockchain, which leverages a proof of work consensus for its network. Notwithstanding the difference in views within the community, the acquisition could work out well for the full-stack Bitcoin mining company, given the ‘movement’ is in its early days. In addition, not many firms have also sought to take advantage, giving the miner an edge among enterprise-grade solutions providers.

To learn more about Litecoin, check out our Investing in Litecoin guide.

Expansion to Southeast Asia

Luxor also this week announced expansion into Southeast Asia thanks to a partnership with Thailand-based mining service provider Cryptodrilling. The integrated blockchain company, which runs mining pools for Bitcoin and select altcoins, described Southeast Asia as an ‘exciting’ region from a growth point of view. The infrastructure and hosting services provider will integrate Luxor’s technology into its platform, hashOS.app, as part of the collaboration. The local firm will also benefit from mining advisory on matters like power contracts and business acquisitions.

Earlier this month, Luxor unveiled a marketplace for new mining machines enabling direct interactions between buying and selling parties via a request-for-quote system (RFQ). The company said the marketplace will help “improve price discovery and increasing liquidity in the secondary market” owing to the RFQ system. The mining rigs market has seen an increase in available stock amid the bear market. The saturation results from machines either unplugged to unsuitable conditions or dumped entirely by financially-troubled miners.

Hive Blockchain realized a profit in Q4, despite a $90M net loss

Following a justified delay, Vancouver-based crypto mining firm Hive Blockchain announced its quarterly earnings for the three months ending December 2022 this week. The NASDAQ and FSE-listed crypto miner said in a press release on Tuesday that it experienced a significant loss in this period due to Ethereum’s shift to proof-of-stake consensus and a Bitcoin price that generally turned sour.

Hive had $14.3 million in revenue, and a gross mining margin of $3.6 million, accounting for 25% of the income accrued from its crypto mining operations compared to a gross mining margin of $15.9 million (54% of the revenue generated from crypto mining) in the same period of the preceding year. The notable decline was largely due to a downturn of 67% in the pricing of digital assets from Q4 2022. Hive said it realized a profit from its mining operations in its fiscal third quarter despite the unfavorable environment by leveraging strategies such as hedging its energy contracts, selling excess power to the grid, and optimizing its operating capacity to maximize profit per kWh.

Mining operations update

The crypto miner reported a net loss of $90 million, increasing from $37 million in the previous quarter. The performance in the last three months of the year contrasted with the previous year, during which the publicly-traded miner saw an income of $51.2 million. Hive mined 787 Bitcoin in this quarter, representing an increase of 13% year over year, an indicator that the miner has been growing its operating hashrate.

CEO and President Aydin Kilic noted a 30% year-over-year surge in its Bitcoin reserves, now totaling 2,372 Bitcoin, despite a 60% increase in the Bitcoin mining difficulty during this period towards all-time high levels near 40 trillion. The spike in Bitcoin production cost to $13,599 per token was expected considering the difficulty adjustment, while the average Bitcoin price was $18,072. This compares poorly as it represents a 37% rise in production costs from the previous quarter, where the average cost was $9,894 at an average Bitcoin price of $21,252.

Surviving the bear market

Given mining is no longer as profitable as it used to be, Hive has begun repurposing its GPUs to service other high-performance computing workloads via the Hive Performance Cloud (HPC) powered by its GPUs. The miner is also redirecting some of the rigs it used to mine Ether to mine other PoW tokens, then converts them to Bitcoin. Hive said that with HPC, the level of profitability is 25 times more than traditional mining. Frank Holmes, the company’s executive chairman, explained that Hive is in a unique position due to the global shortage of the kind of high-quality chips that it owns. He opined that though HPC took a while to roll out, it should blow up at least tenfold over the coming year.

Montana joins the list of US states advocating for private mining operations

Power supply has remained a plight of miners, more so those in the US, but some states are determined to change this narrative. Earlier this month, the Mississippi Senate passed a similar bill to protect crypto miners from discrimination through a well-defined framework. Missouri lawmaker Phil Christofanelli also recently introduced a bill that will similarly allow its miners in the state to run a Bitcoin node. Both initiatives, which seek to support mining businesses in the respective states, received a contribution from Satoshi Action Fund Porter.

This week, the Montana Senate passed a bill that counters discrimination of at-home crypto miners in utility rates resulting from zoning laws. The bill, which too had input from Porter, received 37 votes in favor from 50 lawmakers and will now need approval from the states House before being signed into law by the state governor Greg Gianforte. In addition to granting crypto miner’s the right to mine, the proposed bill also featured a provision to get rid of taxes imposed for using crypto as a payment method.

Kazakhstan acts to regulate intensive crypto mining amid power grid strains

The picture is different in Kazakhstan, whose government earlier this month resorted to tame the effect of crypto mining on its power grid. President Kassym-Jomart Tokayev signed new legislation to that effect into law with official communication posted on the president’s website indicating that the decision will help the country alleviate the incessant pressure that its power resources have seen over the years, both from legal and illegal operators.

The Central Asian country will allow crypto miners to use electricity resources only when there is an apparent surplus on the national grid. This move might be seen as inflammatory for mining operations, but Kazakhstan still wants the industry close to heart. The president’s office also informed that miners leveraging other sources of energy, such as private generators or renewable sources, will not be affected by this ban, only those who draw power from the national grid.

The government of Kazakhstan also plans to rubber-stamp a roster of authorized mining pools that firms can exploit. It has instituted a policy requiring miners to liquidate a proportion of the mined crypto to exchanges registered with the Astana International Finance Centre, which serves as the country’s designated economic zone. Miners are obligated to sell 50% of their crypto to these registered exchanges by 2024, with the requirement increasing to 75% by 2025.