Bitcoin Miners Surface for Air as Sliding Natural Gas Price Brings Cost Relief
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Bitcoin miners, who have been battered by the recent bear market and high energy prices for months, are finally getting some relief thanks to natural gas prices, which have fallen about 75% since August. Meanwhile, crypto prices have rebounded.
Miners use large amounts of energy, and their profitability depends largely on their ability to consistently source cheap power. Many industrial-scale miners rely on power grids that generate electricity using natural gas, and do not have fixed-price power purchase agreements, exposing them to the vagaries of energy markets.
“2022 showed how vulnerable these miners are to global fuel price growth,” said Jaran Mellerud, analyst at mining services firm Luxor Technologies.
Many of these miners suffered heavy losses as natural gas prices rose due to sanctions imposed on Russia following last year’s invasion of Ukraine, plus the price of bitcoin plummeted in 2022, hitting a two-year low in November.
Read more: How does Bitcoin Mining work?
Companies responsible for more than 1 gigawatt of hosting capacity entered bankruptcy protection as a result of last year’s 41-year high power prices, cryptocurrency-focused financial services firm Galaxy Digital said in a report last month. Hosting companies that offered fixed-price contracts to their customers were particularly vulnerable to the variability of energy markets, and some of them ended up paying more for the service than they took in.
The high-profile companies that filed for bankruptcy last year in the mining industry, Core Scientific (CORZ) and Compute North, had large third-party hosting businesses.
But all this can change.
Natural gas — which accounts for about 32% of U.S. energy consumption, according to the Energy Information Administration — has fallen about 75% to $2.44 per million British thermal units on the New York Mercantile Exchange. By comparison, the price in August 2022 was around $9 per million British thermal units, according to CNBC data.
Demand has been lower than expected due to an unusually warm winter in Europe, which among other things has contributed to lower prices. Meanwhile, bitcoin rose around 40% in price in January.
That environment has had a “positive impact” on bitcoin miner Greenidge Generation’s ( GREE ) operations, particularly its natural gas facility in upstate New York, said the company’s chief strategy officer Scott MacKenzie.
Read more: Bitcoin Miner Greenidge Generation Restructures Another $11 Million in Debt
The price of natural gas is expected to remain low in the short to medium term, giving miners some wiggle room to lower operating costs, according to some industry participants.
“In the absence of another big surprise (like the Ukraine war), we don’t expect natural gas prices to go back to the recent peak above $9,” said Alex Stoewer, CEO of Digital Power Optimization, a company that helps power producers to balance the electricity load using various solutions. “Henry Hub futures for December 2025 are currently at $4.50, with summer prices in the mid-$3s.”
The impact of lower natural gas prices and higher bitcoin prices is starting to show in the global hash rate, a measure of computing power on the Bitcoin network, according to investment bank DA Davidson.
“It improved [mining] economics have encouraged less efficient operators to re-engage, sending network competition to new heights,” analyst Chris Brendler wrote in a Jan. 30 research note. The hash rate will remain high according to Brendler’s estimation, especially given the drop in natural gas prices.
Renewed partnership
At the height of last year’s war-induced natural gas rally, demand for power surged as the US saw its third hottest summer on record.
This meant that not only were prices for online miners sky high, but energy producers and utilities could sell their power to other industries at massive profits, thus barely making any new deals with the miners.
Read more: A large abundance of Bitcoin mining rigs are sitting unused in boxes
As natural gas prices fall in 2023 and mining economics improve, the case for bitcoin mining becomes lucrative – for miners and energy companies alike.
“New [mining] deployments benefit significantly from this by raising capital to build bitcoin mines and form new partnerships with gas owners,” said Luxor Technologies Chief Operating Officer Ethan Vera.
Galaxy said partnerships between the two industries are mutually beneficial as “miners can secure lower energy prices and energy suppliers can have a guaranteed off-taker of energy to monetize excess energy.”
The impact of natural gas fluctuations is a stark reminder that ensuring energy costs can stay low over the long term is more important than flocking to a short-term ultra-low-cost opportunity.
“The past year shows that miners are better off fixing the long costs of power, as opposed to flocking to areas where energy prices are cheap but variable,” said Sergii Gerasymovych, founder and CEO of mining company EZ Blockchain.
Read more: Can crypto miners make the world greener?
