Bitcoin miners are rethinking business strategies for long-term survival

The Bitcoin mining industry continues to face a challenging year as the price of Bitcoin (BTC) hovers below $20,000, coupled with rising energy costs in North America and Europe. Regulators have also recently begun cracking down on crypto mining, as a recent report from the Bitcoin Mining Council (BMC) found that Bitcoin has seen a 41% increase in energy consumption year-over-year (YoY). As a result, a number of crypto mining companies have been forced to sell equipment, while others have filed for bankruptcy.

Yet this has not been the case for some miners, especially those focused on clean energy solutions and strategic approaches. For example, in September, crypto mining firm CleanSpark announced a deal to buy Mawson’s Bitcoin mining facility in Sandersville, Georgia, for $33 million. Crypto mining company White Rock Management also recently expanded its mining operations to Texas.

Why Some Bitcoin Miners Thrive in a Bear Market

Matthew Schultz, executive chairman of CleanSpark, told Cointelegraph that he sees mining as a unique way to reduce energy costs when harnessed for reasons other than making money. According to Schultz, this perspective has differentiated CleanSpark from other crypto mining companies. “Bitcoin mining is a potential solution to create more opportunities for energy development,” he said.

Schultz elaborated that CleanSpark partners with cities in the United States, such as Georgia and Texas, to purchase excess energy. For example, he noted that CleanSpark works with local areas in Georgia that receive energy from the Municipal Electric Authority of Georgia.

“These towns essentially become our utility supplier. They earn a margin on every kilowatt hour we buy to run our mining operations. Yet we buy such large amounts of energy that it lowers energy costs for the communities we work with. We aim to positively impact the towns by to reduce energy costs, he said.

Schultz also pointed out that CleanSpark formed a partnership with energy company Lancium to support their data center in West Texas by purchasing excess renewable energy to create grid stability. As a result, Schultz shared that CleanSpark currently has half a billion US dollars worth of assets on its balance sheet and less than $20 million in debt, along with backing from investors such as BlackRock and Vanguard. Given this, Schultz believes that the crypto bear market has affected CleanSpark differently compared to other crypto miners.

For example, he noted that when a Bitcoin was worth $69,000 a year ago, many miners discussed plans to hold BTC. “These miners have also made large commitments to companies like Bitmain for the future supply of mining rigs,” he said. Still, according to Schultz, CleanSpark conducted a comprehensive analysis of the number of mining rigs ordered last year, while also looking at future energy forecasts. He stated:

“We came to the conclusion that instead of sending a deposit for mining equipment to suppliers last November that is just now being delivered, we saw the possibility of an oversupply of rigs and an increase in energy costs. Therefore, we sold Bitcoin when it was in the $60,000 range and invested the proceeds in infrastructure instead.

Not only did this allow CleanSpark to purchase its new mining facility in Sandersville, Georgia, but Schlutz also noted that the firm is currently purchasing Bitcoin mining rigs at a very low price. “We are buying rigs for $17 per terahash that a year ago cost $100 per terahash.”

As a number of miners are forced to sell their equipment, both used and new mining rigs are being sold at below market prices, creating buying opportunities for firms like CleanSpark.

Scott Offord, owner of Scott’s Crypto Mining – a service that offers new and used mining equipment, along with mining training courses – told Cointelegraph that prices for miners are now very reasonable, based in part on a lack of demand due to the low price of Bitcoin. Offord added that many of the used miners he is currently selling have come from hosting facilities in debt. He said:

“During the last bull run you couldn’t get miners without a 6 month lead time. It’s the opposite now since many miners don’t capitalize. Usually Bitcoin miners get rid of their equipment because the equipment is old and something newer is on the market, but it seems people are now selling because they need cash flow.”

Offord also pointed out that he sees a lot of new mining equipment hitting the secondary markets. “A lot of new generations of Antminers are being resold. For example, things like the S-19, which are some of the most efficient miners in the world right now,” he said.

As for pricing, Offord explained that crypto miners may be able to purchase a new Antminer S-19j pro for around $20 per terrahash. “This same machine would have cost three times as much with a three-month lead time a year ago,” he added.

Andy Long, CEO of Bitcoin mining company White Rock Management, Offord told Cointelegraph that miners who sell equipment usually do so to cover debt payments for hardware purchased when prices were higher. “Hardware is now being bought by well-capitalized miners and will continue to be used to secure the network,” he said.

According to Long, White Rock Management’s operations in the US have not been affected by the bear market, adding that the facility in Texas operates completely off the grid. “White Rock’s US operations are powered by flared natural gas, while our mining operations in Sweden are also 100% hydro-powered.”

Bitcoin miners are rethinking business strategies

While miners like CleanSpark and White Rock Management continue to grow, others may need to rethink their business strategies. Elliot David, head of climate strategy and partnerships at the Sustainable Bitcoin Protocol – a green Bitcoin mining certification protocol – told Cointelegraph that he believes conditions for miners are going to get worse before things get better. “Miners who want to survive in the long term need to change their strategy,” he said.

Some miners actually make adjustments. For example, Jonathan Bates, CEO of crypto mining firm BitMine, recently mentioned in a press release that due to the sharp decline in mining rig prices, the firm will for now only focus on self-mining instead of hosting others.

“Given the sharp drop in ASIC prices, we feel that the focus on self-recovery is a better use of our data center equipment and a better use of fixed capital at this time,” he said. He added that the firm plans to “pursue joint ventures and partnerships where our infrastructure equipment can be paired with ASIC miners valued at current prices.”

The press release further noted that on October 19, Bitmine entered into a repurchase and hosting agreement with The Crypto Company (TCC), a publicly traded blockchain company.

Pursuant to this agreement, Bitmine agreed to buy back certain ASIC miners previously sold to TCC, while also purchasing additional ASIC miners owned by TCC. Bitmine will also terminate the hosting agreement it had established with TCC.

To be specific, Bitmine TCC sold 70 Antminer T-17s for $175,000, along with 25 Whatsminers for $162,500, for a total purchase of $337,500 during February of this year.

At the same time, Bitmine and TCC entered into a hosting agreement where Bitmine agreed to host the miners, along with other miners owned by TCC.

Due to current conditions, it has been noted that Bitmine will accept the return of the 70 Antminer TY-17s for a credit of $175,000 as a warranty claim. Bitmine will also buy the 25 Whatsminers for $62,500 and the 72 Antminer T-19s from TCC for $144,000. This marks a significant price reduction from when the units were first sold.

In 2021 – during the height of the crypto bull run – Bitmine entered into an agreement with a telecommunications company located in Trinidad and Tobago. The agreement allows Bitmine to co-locate up to 125,800 kilowatt containers to host miners across 93 potential locations. Bitmine is also able to co-locate containers at its own pace, paying a fixed amount per container, along with the electricity costs incurred for the containers.

At the time of the deal, Bitmine noted that the electricity price expected to pay for the hosting containers was $0.035 cents per kilowatt hour. This was based on the rate currently paid by the telecommunications company.

In October of this year, Bitmine completed the installation of its first hosting containers in Trinidad. However, before the operation began, Bitmine shared that the telecommunications company informed that the electric company would not honor its existing agreement and instead indicated that the price would be approximately $0.09 per kilowatt hour. Although the telco has protested this decision, Bitmine has chosen to delay the installation of additional containers in Trinidad until the dispute is resolved.

The Future of Crypto Mining

Given recent changes made by miners, David believes the crypto mining industry is approaching a tipping point. “Miners need to diversify their income streams,” he said. With this in mind, he explained that there has been growing interest from clean energy miners who want to work with the Sustainable Bitcoin Protocol to ensure sustainable mining as a way to become more financially robust.

Echoing this, Offord mentioned that he is seeing more interest from miners regarding their environmental impact. “Miners are looking for opportunities in places where there is flare gas that needs to be reduced, or where biofuel is made from farm waste. Miners are not just focused on building a Bitcoin mine, but want to build something sustainable that can be carbon negative.”

In addition to sustainability, David pointed out that regulations are becoming more important than ever before for crypto miners. He noted that this is especially true in the United States, noting:

“Industry in the US is becoming increasingly aware that unless they regulate themselves, the various levels of government can step in. I have spoken to a number of decision makers and employees and in a crisis the Bitcoin mining industry will be the first. goal.”