Could Bitcoin miners’ troubles trigger a ‘death spiral’ for BTC price?

The crypto community was captivated by a July 9 post from @PricedinBTC about the “cost to mine Bitcoin in the United States”, especially given the recent headlines BTC miners made. Some companies have had to lay off workers and some others defer capital expenditures due to the crypto bear market and rising energy costs. Some even raised concerns about Bitcoin miners falling into a “death spiral”.

When bear markets are like this, it’s not uncommon for a Bitcoin critic to claim that Bitcoin will soon fall from a “miner Death Spiral”. This means that miners will stop operating because they don’t have the financial resources. Then Bitcoin’s hashrate will drop, leading to its…
Cory Klippsten (@coryklippsten), July 6, 2022

Raymond Nasser (CEO of Arthur Mining), a professional mining company in the United States, told Cointelegraph that the margins they have don’t fully match the data from @PricedinBTC.

Cost to mine 1 #bitcoin in every U.S. state pic.twitter.com/JKug0KtGVq
— July 9, 2022, Priced in BTCitcoin/21M (@PricedinBTC).

Arthur Mining has a current capacity of 25 megawatts (MW), and the company is focused on renewable energy. Although it is easy to dismiss their numbers, listed companies such as Marathon Digital Holdings boast 300 MW plants. However, these companies rely on traditional grid energy, even though a portion of their power comes from hydro-electric plants.

The smaller scale mining operations use less-valued flare and stranded natural gas from the oil industry to achieve the best ESG practices. Mobile Bitcoin mining is their secret weapon. They tap greener, more efficient, and more lucrative energy sources than traditional solutions.

Nasser spoke out about the $16,000 production cost of miners:

These diagrams can be very subjective. These diagrams represent the most expensive and complex on-grid energy costs in urban areas. They are the biggest new projects in this industry. In two U.S. states, our all-in energy costs are less than $0.02 per kWh. States.”

In the last year, electricity prices have doubled

QuickElectricity data shows that commercial electricity prices per kilowatt/hour (kWh), ranged between $0.08 and $0.09 from March 2022 in the U.S. states of Idaho, Utah Virginia, Texas, Nevada North Dakota, Nebraska, Oklahoma, Texas, Nevada and Texas.

The strength of the Bitcoin network’s efficiency is its focus on efficiency. This means that the labor-intensive production process will always seek the lowest operational costs and shift towards that. ASIC mining equipment can be used anywhere, but it also has the option to use other energy sources. These machines can be transported to offshore oil and natural gas structures in containers and installed with oscillating power sources.

Upstream Data, a Canadian manufacturer of Bitcoin mining data centres, has built portable Bitcoin mining equipment and infrastructure without the need to build pipelines or other midstream facilities. This activity is now mainstream after the deployment of over 180 data centers.

CNBC examined the use of renewable energy in Bitcoin mining earlier this year. Giga Energy Solutions is a natural gas Bitcoin miner and has signed deals with over 20 oil and gas companies. Four of these are publicly traded.

BTC miners are suffering from higher interest rates and Bitcoin’s crash

Miners are struggling with their balance sheets, regardless of energy source. Financing has been a significant problem in the industry, besides the negative impact of low Bitcoin prices. Cointelegraph’s July 7 report showed that some industrial-sized Bitcoin miners owe $4 billion in loans. Some have had to liquidate their BTC holdings for capital and operational expenses.

Not all mining companies have access to long-term, traditional bank financing. These firms used their infrastructure and miners as collateral to create a more risky debt structure. The mining equipment prices plummeted, which in turn led to worsening financing conditions for those who needed them most.

Rich Ferolo, analyst at Blockware Solutions, expressed concern to Cointelegraph on the 28th of June:

“BTC should be around $18,000 …. for the s17s [ASIC miners], at $0.07/kilowatt. You’ll see a lot more capitulation, insolvency, and excessive machines. It’s more about survival.

According to Nasser

“We have always managed our convexity exposure by reinvesting and liquidating our bitcoin funds on a weekly base. With 70%+ ebitdas, high efficiency in most cases, and high profitability, being greedy about Bitcoin reserves could lead to a breakdown of your operation and even loss of jobs. We have seen this in the past month.

Although the mining industry is facing a problem, its impact on the economy is minimal.

Although the industry has clearly identified a problem, this may simply be due to its young age. The price of Bitcoin may be under pressure because miners are selling more Bitcoin than what they have mined in the last few months.

This never-ending cycle reinforces “death spiral” theory. However, this simplificiation fails to recognize that miners shut down their machines when they reach a certain price point and that many will relocate to areas that have lower electricity costs or seek out renewable energy options.

While a decreased mining activity can pose a short-term threat to the network’s security, this risk is exaggerated because Bitcoin’s difficulty adjustment boosts operational miners’ profitability. The Bitcoin mining business is not a systemic risk to the BTC price.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.

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Eileen Wilson

Eileen Wilson –Technology and Energy My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.

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