Energy inflation isn’t just bad for the costs of goods and services and general economic health. Bitcoin miners can come under significant constraints during these impulses. Increasing costs of energy directly impact the costs of power generation, which miners, particularly on-grid miners, are explicitly at the whims of. With the price of bitcoin hovering between $25k and $30k the revenues of these operations come under pressure.
As reported by Luxor’s Hashrate Index on Monday, Bitcoin’s hashrate expanded 10% in just a 7-day period. This is a serious signal that exposes the amount of voracious desire to deploy bitcoin miners to consume energy. This time it isn’t just the oil & gas majors that are realizing efficiency gains as I have previously discussed in multiple past publications 1,2,3. Now we have entire sovereign nations that are deploying bitcoin mining operations like Oman4, Bhutan5, with the Emir of Qatar visiting El Salvador recently6.Â
This is not something to be taken lightly. Nations do not play on the same level as private and public businesses such as Marathon or Riot. Businesses operate much more at the whims of market dynamics such as profits. These nations are capable of utilizing debt financing, tax revenues, and currency debasement to fund and facilitate deployment of these operations. Nations are also capable of utilizing these projects to maximize operational efficiencies without the need for immediate profits, similarly related to the oil majors’ justifications for utilizing mining to capture and consume natural gas instead of flaring, venting, or liquefaction.Â
Leading to risks of hashprice continuing to flounder or fall as competition skyrockets (measured by hashrate). As competition rises and profitability bleeds, expect existing bitcoin miners to come under significant pressures. Bitcoin miners are behooved to seek out hedging strategies if they intend to survive this environment, those that have ignored such suggestions will surely come to regret their ignorance(s) — if they haven’t yet.
What do the miners do after the 21 million Bitcoin are mined? Can they become nodes? Lightning nodes? What?