Energy companies’ capital intensity risk models by necessity look to opportunity for growth and to evolve. Energy prices have risen for the past year and accelerating higher after the Russian invasion of Ukraine. Together with the price of Bitcoin still down 40% from its November higher bitcoin margins have contracted to about 70% from 90%, according to analysts. Energy companies are in the position to deliver power directly to Bitcoin miners. Beowulf Mining Plc is an example of the opportunity for both energy firms and miners cutting out the middleman.
Beowulf Mining Plc with direct access to power built a data center in Montana for its client Marathon Digital Holdings Inc. a major Bitcoin miner in 2020. The move enabled Marathon Digital Holdings to break its reliance on third parties for electricity. Beowulf floated its crypto offshoot TeraWulf in 2021, the business projected having 800 megawatts of mining capacity and 10% of the Bitcoin network’s current computing power by 2025.
Bitcoin miners pay hosting sites to build their data centers and host, run and maintain their machines. Crypto mining being banned in China gave U.S. miners a huge windfall, which led to greater efficiency.
Other energy groups that discovered Bitcoin mining from clients before building out their own facilities, includes CleanSpark Inc., Stronghold Digital Mining Inc. and Iris Energy Ltd. The changing environment and heightened geopolitical risk together with lower operational risks and wider profit margins is positioning energy firms as a major force in crypto.
“Energy companies tend to be very conservative by nature and they are often regulated,” said Paul Prager, chief executive officer of TeraWulf. “We are early adopters because we had a front-row seat in our partnership with Marathon.”
“It is not only the efficiency from the commercial perspective but it is from a risk perspective where we are better built to handle the downside,” Prager said. “When a transformer goes out on site, you are not calling a third party service firm to come in to repair it, putting in a change order, paying them overtime and hoping that in two to three weeks that transformer is repaired.”
“If you are buying power from a producer and paying a third-party operator to manage the data center, you are going to have lower margins than those that do it themselves,” Gregory Beard, chief executive of Stronghold.
Earlier adopters of Bitcoin mining in the U.S. such as Marathon and Riot Blockchain Inc. are still dominant in terms of computing power. But another advantage energy-turned Bitcoin miners might enjoy over peers is their willingness to sell the Bitcoin they mine, unlike some crypto enthusiasts promoting the hodl, or “hold on for dear life” mantra.
With the recent slide in Bitcoin prices, companies like Marathon have been shoring up balance sheets and turning to debt and equity capital markets to raise money. Meanwhile, CleanSpark has not sold a single share of equity since last November, said Matthew Schultz, executive chairman.
“Instead of selling part of the company, what we sell is a small portion of the Bitcoin that we mine,” he said. “It costs us about $4,500 at our company’s own facilities to mine a Bitcoin at today’s price; that is a 90% margin. I can sell Bitcoin and use that to pay for my facilities, operations, personnel and growth, and not dilute my shareholders.”Bloomberg
Beowulf Mining plc operates as a mineral exploration company. The Company focuses on magnetite and hematite, base and precious metals, graphite, and industrial mineral projects. Beowulf Mining offers its services in Sweden and Finland.
Marathon Digital Holdings, Inc. operates as a digital asset technology company. The Company mines cryptocurrencies, with a focus on the blockchain ecosystem and the generation of digital assets. Marathon Digital Holdings serves customers worldwide.
Source: Bloomberg, TC
From The TradersCommunity Research Desk