Cryptocurrency Turmoil Affects Crypto Miners: NPR

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Cryptocurrencies like bitcoin are generated or mined by companies using racks and racks of custom computers. The world of digital currency is struggling these days in the wake of the FTX scandal. Crypto miners face their own problems. Vaughn Golden of member station WSKG explains.

VAUGHN GOLDEN, BYLINE: A few years ago, cryptocurrency mining was a golden goose. Businesses flocked to places like Massena, NY, to mine bitcoin, promising to bring jobs and economic development. Tina Barksdale, a spokesperson for one such facility, gave a tour to North Country Public Radio in 2018.

TINA BARKSDALE: From being just Massena, NY, to being a kind of cryptocurrency in Silicon Valley – but of course it all depends on the power.

GOLDEN: The computers used to generate bitcoin often use a ton of energy. While Massena gets a good portion of its energy from relatively cheap hydropower, other miners are not so lucky. Chris Brendler is a senior analyst at DA Davidson.

CHRIS BRENDLER: Really, the only cost they have that is pure commodity cost is electricity.

GOLDEN: He says all crypto miners are different in how they pay for energy. Some have contracts with utilities. Others generate their own energy. But for those exposed to rising natural gas prices, profit margins are squeezed.

BRENDLER: This is a very simple model. If you don’t cover the electricity costs, you shut down the mining operation.

GOLDEN: And if miners don’t mine and don’t have another source of income, they can go bankrupt. Some have. This is also combined with other factors. There are still many miners competing to generate these cryptocurrencies. At the same time, the prices are relatively low, which means the same costs with lower rewards. Another challenge that has arisen is public opposition to the potential environmental impacts of mining. New York state, for example, just passed a two-year ban on burning fossil fuels for mining out of concern that it will increase the state’s carbon emissions. Brendler says energy costs and competition are bigger concerns than new environmental regulations.

BRENDLER: It’s not going away as a problem. I don’t see it as a high risk for, you know, actual operations in the short term, but it’s not zero.

GOLDEN: Kyle Schneps is director of public policy at Foundry USA, which coordinates a network of miners. His company has been around for a few years, and he says they prepared for this so-called crypto winter.

KYLE SCHNEPS: Companies that have been around for a while are used to the cyclical nature of bitcoin pricing and crypto pricing. And that’s how most people are – instead of being handed in good times, they plan for the downturn cycle in those times.

GOLDEN: Now Foundry is betting on mining. The downturn makes it cheaper to invest now in the hope that things will pick up again. Other companies are too. Goldman Sachs recently said it plans to invest millions in cheap crypto assets. Brendler, the analyst, says he sees this moment as a sort of purge of weaker mining companies.

BRENDLER: We have seen companies struggle, fail, go bankrupt, be closed. It still continues.

GOLDEN: And he says that while energy prices remain high and the crypto winter rages, less stable mining companies may continue to shut down.

For NPR News, I’m Vaughn Golden in Binghamton, NY

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