Margins of up to 90% Give Energy Firms an Edge to Mine Bitcoin

While its clients Marathon Digital Holdings Inc. relied on third parties for electricity, Beowulf had direct access to electricity, which could be a profitable play if it were to start mining bitcoin.

In a paid stipulation and filing to make its crypto offshoot Terawolf public in 2021, the business is projected to have 800 MW of mining capacity by 2025 and 10% of the current computing power of the bitcoin network.

The company is one of a handful of energy conglomerates to seek bitcoin mining from customers before building their facilities, including CleanSpark Inc., Stronghold Digital Mining Inc. and Iris Energy Ltd. and with low operational risk and wide profit margins, EnergyCrypto. Firms are becoming a major force in

“Energy companies are very conservative by nature and are often regulated. We are early adopters because we had a front row seat in our partnership with Marathon,” said Paul Prager, CEO of TeraWolf.

Citadel chief executive Gregory Beard said that while miners can have a decent margin at 5 cents per kWh, those with direct energy sources and power assets enjoy much lower prices.

“If you’re buying power from one manufacturer and paying a third-party operator to manage the data center, you’ll have lower margins than people who do it themselves,” Beard said.

This added advantage could give energy companies an edge over competitors as the lucrative margins of the bitcoin mining industry are shrinking. According to analysts, the price of bitcoin is still down 40% from its November highs and the war in Ukraine has led to an increase in energy prices, reducing margins from 90% to almost 70%. With bitcoin block rewards also programmed to halve in less than three years, further pressure is expected.

“It’s not only efficiency from a business standpoint, but it’s also from a risk perspective where we’re better prepared to handle the downside,” Prager said. “When a transformer goes out on site, you are not calling a third party service firm to repair it, place a change order, pay them overtime and hopefully replace the transformer in two to three weeks. will be repaired.”

Typically, bitcoin miners will pay hosting sites to not only build their data centers but also to host, run and maintain their machines. Fees for such services are also rising as Beijing’s ban on crypto mining has given US miners a multibillion-dollar gain, with many able to obtain a lot of bitcoins from the network with the same inputs.

The bitcoin network is programmed to award a certain number of tokens in tokens when miners successfully process a block. The more computing power a miner or group of aggregated miners has, the more likely the miner is to receive a reward.

The first adopters of bitcoin mining in the US such as Marathon and Riot Blockchain Inc. Still dominant in terms of computing power. But another advantage that energy-strapped bitcoin miners may enjoy over peers is the willingness to sell their bitcoins, unlike some crypto enthusiasts who promote hodl, or “dear life’s”. hold for” mantra.

With the recent drop in bitcoin price, companies like Marathon are ramping up balance sheets and turning to debt and equity capital markets to raise money. Meanwhile, CleanSpark has not sold a single share of equity since last November, said Matthew Schultz, executive chairman.

“Instead of selling part of the company, what we sell is a small part of the bitcoins that we mined,” he said. “At today’s price it costs us about $4,500 to mine one bitcoin at our company’s own facilities; that’s a 90% margin. I can sell bitcoin and use it in my facilities, operations, personnel and development.” to pay for what I can, and not to reduce my shareholders.”