Bitcoin miners are swinging in search of profits – and hedging their bets

Bitcoin miners and hosting companies that stay afloat in this market have had to venture outside the blockchain industry.

At current prices and Bitcoin network difficulties, only Bitcoin miners with the latest, most efficient rigs and highly competitive power prices are able to break even. That is, if they just trust Bitcoin extract for their income. The companies that are keeping their heads above water have had to find other ways to generate cash from their hardware fleets.

As a recent example, Applied Blockchain CEO Wes Cummins walked a fine line during a recent earnings call.

The data center company hopes a name change, to Applied Digital, will signal that it is not just focused on Bitcoin miners. The change will not 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.

Out with blockchain; in with high performance computing, or HPC.

Cummins said on the call that the company is looking “a much larger market opportunity related to 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 the list will include publicly traded miner Marathon Digital (MARA), which just signed a 5-year, 200 megawatt hosting contract.

“I think Marathon is one of the best counterparties, if not the best of the listed miners in the industry,” Cummins said on the call Tuesday.

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

On Tuesday, MARA traded at $11.27 per share. This is a decrease of 46 percent from six months ago. In the same period, Riot Blockchain (RIOT) has fallen by 60% and Bitfarms (BITF) by 70%.

Hut 8 Mining ( HUT ), another miner outperforming the competition, traded at $1.89 on Tuesday, down 56% from six months ago.

In a mining update filed with the SEC in September, Hut 8 said that all of the Bitcoin it mined during the month had been deposited into escrow, in accordance with its “HODL strategy.”

It’s a timely flex for a company to say it keeps all the Bitcoin it mines.

Earlier this year, beleaguered Bitcoin miners sold more than they extracted. And that round of selling has kept Bitcoin mining reserves at one 12 year low of 1.9 million BTC for most of 2022.

But Hut 8’s Bitcoin glow waned as CEO Jamie Leverton said the company was ramping up its HPC business, “which includes potentially leveraging our GPUs to provide AI, machine learning or VFX rendering services to clients, extracting the next most profitable the proof of work. digital asset during idle time.”

Other mining companies have turned their competitors’ situation into opportunities for mergers and acquisitions. CleanSpark has already spent close to $100 million to buy Georgia mining facilities from Mawson and Waha Technologies and 10,000 discounted Bitmain Antminer S19j Pro rigs.

But it is a precarious time to bring new rigs online.

Bitcoin network difficulty, or how many guesses it takes a miner to solve the cryptographic string that allows it to add a block to the chain, jumped 14% on Monday to 35.6 trillion. That’s an all-time high for the network.

That means miners with the latest mining rigs and access to electricity at a rate below $0.07 per kilowatt are squeaking by about $6 a day for each rig they run, Luxor research manager Colin Harper said Decrypt.

But there are ways to predict when the difficulty may experience a big swing up or down. That’s why Luxor just launched a Bitcoin mining futures contract.

The derivative, which is available to accredited investors, allows miners to hedge against dwindling margins. Harper explained that a miner with 100 rigs looking to lock in a profit of $7 per day for each machine can sell a 30-day derivative contract for the computing power it takes to run those rigs.

“If BTC mining profitability goes down over this time frame, then you’ve hedged that downside and made a profit,” he said, “but if profitability goes up, then you’ve lost money.”

In this market, there is a chance Bitcoin miners may be willing to take.