If you host with a Bitcoin mining provider of any scale, chances are your hosting fees jumped over the last few months.
Energy prices across the United States have increased 13% year-over-year, according to the St. Louis Fed’s Consumer Price Index for Electricity. Indeed, forecasts for 2022 retail electrical rates show an average rate of $0.14 kWh, a 5.3% increase from the prior year, per the US Energy Information Administration (EIA).
For miners, the picture is just as gloomy, with rates jumping nearly 30% from $0.06 kWh to $0.08 kWh for most hosting providers surveyed by Mining Memo. It's a fair assumption that self-mining operations are also seeing electrical cost increases, depending on the contract structure.
These spikes follow the bottom line cost increase for most Independent System Operators (ISO) in the US over the last year. The ISO-NE, for example, rate increased from $50 MWh to $153 MWh, or 67%. Most miners seek sub-$50 MWh rates. What was that about Bitcoin being an inflation hedge?
There’s multiple variables and inputs into energy costs that readers are likely familiar with: The Russo-Ukrainian conflict, Western Europe’s energy crisis, the lack US infrastructure for oil development and refinery, inflation and so on. Additionally, the glut of idle ASICs can’t be overlooked as a cause for higher hosting rates. Many publicly listed miners have thousands of machines offline.
Regardless of the inputs, miners remain curious about the outputs: Is it worth keeping my ASIC online with such elevated opex spends? How can I pay my machine off with such high costs and low returns?
Like all financial decisions, these inputs and its output still come down to a personal investment thesis. Some miners will turn off, following the logic found in the Bitcoin white paper, while others will find a way to stick through the pain to continue accumulating Bitcoin. Like we said in Thursday’s Mining Memo Markets, some miners will get washed out due to a confluence of bad debt, poor infrastructure and low yield. But others will ride out both the macro and micro hurdles gripping both the energy and Bitcoin mining industries to realize future higher returns.
As of now, the network’s stubborn toehold on 200 EH/s indicates many miners are still dancing around this decision. Most newer generation machines remain profitable, but just barely. A price swing in one direction or the other could spell the end to few ill fated mining adventures, or the resurgence of the network hashrate.
Thanks to Shanon Squires for his input.