Bitcoin miners pivot in search of profits and hedge their bets

Bitcoin minors and hosting companies staying afloat in this market have had to venture outside of the blockchain industry.

At current prices and Bitcoin network difficulty, only bitcoin miners with the latest and most efficient rigs and highly competitive feed rates are able to break even. In other words, if they only rely on Bitcoin mining for their income. Companies that keep their heads above water have had to find other ways to generate cash with their equipment fleets.

As a recent example, Applied Blockchain CEO Wes Cummins walked a thin line on a recent earnings call.

The data center company hopes a name change to Applied Digital will signal that it’s not just focused on bitcoin miners. The change won’t be official until shareholders approve it at the company’s annual meeting in November, but the company has already updated its website, Twitter account and logo.

No more blockchain; with high performance computing or HPC.

Cummins said on the call that the company sees “a much larger market opportunity for high performance computing applications related to image processing, graphics rendering, artificial intelligence and machine learning.

But Applied still counts Bitmain, F2Pool and GMR among its biggest customers. And soon that list will include publicly traded miner Marathon Digital (MARA), which just signed a 5-year, 200-megawatt hosting deal.

“I think Marathon is one of the best counterparties, if not the best publicly traded mining company in the industry,” Cummins said on the call Tuesday.

In this market, this means that MARA is less down than its other listed mining competitors.

On Tuesday, MARA was trading at $11.27 per share. That’s a 46% drop from six months ago. Over the same period, Riot Blockchain (RIOT) fell by 60% and Bitfarms (BITF) by 70%.

Hut 8 Mining (HUT), another miner outperforming its competitors, was trading at $1.89 on Tuesday, down 56% from six months ago.

In a September mining operations update filed with the SEC, Hut 8 said that all bitcoins mined during the month were taken into custody, in accordance with its “HODL strategy.”

It’s a timely flex for a company to say they keep all the Bitcoin they mine.

Earlier this year, embattled Bitcoin miners were selling more than they mined. And this selling frenzy kept Bitcoin mining reserves at a level 12-year low of 1.9 million BTC for most of 2022.

But Hut 8’s bitcoin fervor waned when CEO Jamie Leverton said the company was growing its HPC business, “which potentially includes using our GPU machines to deliver AI, machine learning or rendering VFX to clients, and mining the next most profitable proof-of-work digital asset during idle times.

Other mining companies have turned the plight of their competitors into opportunities for mergers and acquisitions. CleanSpark has already spent nearly $100 million to buy mining facilities in Georgia from Mawson and Waha Technologies and 10,000 Bitmain Antminer S19j Pro rigs at a discount.

But it’s a precarious time to bring new platforms online.

Bitcoin network difficulty, or how many guesses it takes for a mining rig to solve the crypto chain that allows it to add a block to the chain, jumped 14% on Monday to 35.6 trillion. This is an absolute record for the network.

This means that miners with the latest mining rigs and access to electricity at a rate of less than $0.07 per kilowatt cost around $6 per day for each rig they operate, said Colin Harper, head of research at Luxor. Decrypt.

But there are ways to predict when the difficulty might experience a sharp swing up or down. This is why Luxor has just launched a Bitcoin mining futures contract.

The derivative, which is available to accredited investors, allows miners to hedge against margin thinning. Harper explained that a miner with 100 rigs who wants a profit of $7 per day for each machine could sell a 30-day derivative contract for the computing power needed to run those rigs.

“If the profitability of BTC mining goes down during this period, then you have covered that downside and made a profit,” he said, “but if the profitability goes up, then you lost money. silver.”

In this market, it’s a gamble Bitcoin miners might very well be willing to take.

Disclaimer

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.

Stay up to date with crypto news, get daily updates in your inbox.

Comments are closed.