Overview of the Public Bitcoin Mining Industry

Aug 25, 2023

In the ever-evolving landscape of Bitcoin Mining, public companies have emerged as the dominant players, helping to facilitate and validate transactions and ensure the security of the network. 

Investing in public Bitcoin companies offers investors a way to gain exposure to the growing asset class. While there is currently no Bitcoin ETF (Exchange-Traded Fund) available in the USA, investing in these companies can provide exposure to the asset class. 

This comprehensive article delves into the intricate realm of public Bitcoin mining companies, shedding light on the key players. From industry giants like Riot Blockchain and Marathon Digital Holdings to innovative newcomers like Bit Dear, these companies collectively drive the decentralized ethos of Bitcoin by powering the intricate process of mining.

In this exploration, we delve into the nuances of market capitalization, hashing power, and mining efficiency. We examine the challenges faced by miners as well as trends and future outlooks. 

Overview of the top public market players:

  1. Riot Blockchain (RIOT)

  2. Marathon Digital Holdings (MARA)

  3. Bit Dear (BTDR)

  4. Cipher Mining (CIFR)

  5. Hut 8 Mining (HUT)

  6. CleanSpark Inc (CLSK)

  7. TeraWulf (WULF)

  8. HIVE Blockchain (HIVE)

  9. BITfarms (BITF)

  10. Core Scientific Inc (CORZ)

  11. Iris Energy LTD (IREN)

  12. Bit Digital Inc (BTBT)

  13. Argo Blockchain LTD (ARBK)

  14. Dmg Blockchain Solutions Inc (DMGI)

  15. Stronghold Digital Mining Inc (SDIG)

  16. Greenidge Generation Holdings (GREE)

  17. Mawson Infrastructure Group Inc (MIGI)

Top Players by Market Cap as of August 9, 2023

This chart illustrates the market capitalization of the leading Bitcoin mining companies as of August 9, 2023. Riot Blockchain takes the top spot, followed closely by Marathon Digital Holdings. Bitdeer, Cipher Mining, Hut8, CleanSpark are amongst many others that made the list, showcasing their financial strength and industry dominance.

Top Players by Total EH/s

This chart showcases the total EH/s for the leading Bitcoin mining companies. Marathon Digital Holdings leads the pack with an impressive hashrate, followed by Core Scientific and Riot Blockchains. Clean Spark and Cipher Mining are also prominent players deploying computational power across North America. The graph provides a clear picture of the computational power commanded by each company, a key indicator of mining capability and industry influence.

Mining Efficiency - BTC mined/EH

This chart ranks the leading Bitcoin mining companies by their mining efficiency, measured in BTC mined per EH. Companies like Bitfarms, Hive Digital Technologies, and Clean Spark lead in efficiency, extracting more BTC for each unit of computational power (EH). The graph highlights the effectiveness of different Bitcoin mining strategies and technologies, providing insights into operational excellence.

Year-to-Date Bitcoin Mining Stock Performance to July 31, 2023

This graph illustrates the YTD stock price growth of leading public Bitcoin mining companies and compares it to the Bitcoin market price. On average each company has seen growth of over +200% year to date with almost bankrupt players like CoreScientific (CORZ) up +2000%. A majority of companies have also surpassed the gains Bitcoin has made year to date. Most of these Bitcoin companies act similarly to a 2-3X leveraged position on Bitcoin.

Change from Nov 2021 (BTC $69k) to July 31, 2023

This graph illustrates the stock price change of leading public Bitcoin mining companies and compares it to the price of Bitcoin during its all-time high of $69k back in November 2021. It represents the potential upside some of these stocks have if Bitcoin is to reach back to ATH again, but also represents a cautionary tale as to how much drawdown some of these companies have as again they are essentially leveraged positions on Bitcoin. Companies such as GREE, SDIG, ARBK, and IREN all went public just before or after November’s all-time high using the hype to go public at insane valuations that will be hard to retrace back to. Other players like CORZ took on heavy machine financing debt and had to declare bankruptcy, undergoing a comprehensive restructuring. 

Challenges Faced by Public Bitcoin Miners:

1. Network difficulty:

Network difficulty has continued to climb reaching ATH’s this past quarter. Public bitcoin mining companies face significant challenges when the network difficulty rate reaches all-time highs. The network difficulty rate is a measure of how hard it is to mine new bitcoins, and it adjusts regularly based on the total computational power of the network.

As the network difficulty rate rises, miners need more computational power and energy to mine a Bitcoin. This leads to higher electricity and equipment costs, which can eat into the profitability of mining operations. With higher network difficulty, miners may find it more difficult to mine blocks, resulting in fewer rewards and longer intervals between successful blocks. The profit margins can be squeezed, making it harder to maintain profitability and generate returns for investors.

2. Regulatory Uncertainty:

Throughout 2023, the US exhibited ongoing regulatory resistance towards the bitcoin mining sector, spanning state and federal tiers. Responding to the challenges posed by regulatory pressures in 2022 and 2023, certain public miners have unveiled intentions to broaden their operations internationally. This involves acquiring mining sites, forming joint ventures (JVs), or establishing new sites. 

The perceived unfavorable stance on bitcoin mining and the wider crypto industry in North America has prompted other nations with robust electricity generation to entice miners. Notably, the Texas state legislature's introduction of bills aimed at bitcoin miners marks a significant shift, jeopardizing the industry in a previously supportive region. These instances highlight tangible legislative and regulatory risks faced by the sector.

Bills brought forward:

Texas Senate Bill 1751 - This bill seeks to limit the involvement of bitcoin miners in lucrative demand response initiatives, wherein they receive credits for reducing or turning off operations during peak power demand. (The bill is sitting in the house and is a waiting decision)

Texas Senate Bill 1929 - The bill addresses the registration of virtual currency mining facilities in the ERCOT power region, known for high-demand interruptible power needs. These facilities strain the electric grid due to their rapid connection, high energy consumption, and quick load fluctuations. The bill aims to gather essential data for effective grid management. (It was passed and will take effect September 1st, 2023)

The DAME (Digital Asset Mining Energy) Tax - Federal -The DAME proposal, part of Biden's 2024 Budget, aims to make cryptominers financially responsible for their impact “Environmentally”. The plan entails a tax equal to 30% of miners' electricity costs, potentially yielding $3.5 billion in a decade. Clean energy miners are also targeted due to environmental concerns and potential strain on power resources. (The bill was rejected by Republicans)

Other notable bills throughout the USA - Source Galaxy Digital

3. Upcoming Halving: 

Public Bitcoin mining companies are poised to encounter several challenges with the impending Bitcoin halving in April 2024. This event, which occurs approximately every four years, slashes the block reward miners receive by half. Public companies heavily reliant on consistent income may face financial strain as their earnings decrease. The block reward will drop from 6.25 bitcoin to 3.125 Bitcoin (Note that increasing transactions fees over time are offering some relief).

Bitcoin mining requires a substantial amount of energy. The reduced block rewards will make it harder for mining companies to cover the expense, potentially leading to reduced capacity or even shutting down or relocating facilities with poor power contracts.

To maintain competitiveness, mining companies will need to continually invest in upgrading their hardware and infrastructure. The halving event will expedite the need for such upgrades, further straining their resources. Old machines like the S9’s, T17’s and even M30 + early-gen S19 series will no longer be viable to run. 

The analysis below considers different ASIC models with a breakeven $/MWh, assuming a $40,000 Bitcoin price and 15% of block rewards from transactions. The most efficient ASIC, the S19 XP, shows marginal revenue just above $100/month despite current network hashrate levels. The impending halving will accentuate miners' power strategies and their optimization between floating index and forward hedges, possibly leading to increased downtime for those relying solely on index pricing and potentially contributing to heightened network hashrate volatility.

Source Galaxy Digital

4. Environmental Concerns: 

Due to the energy-intensive nature of the mining process there is increasing scrutiny on its environmental impact. Bitcoin uses roughly 0.55% of the global electricity production equivalent to the annual energy draw of many small countries. 

Governments and regulatory bodies are increasingly imposing emissions regulations and carbon reduction targets. Mining companies may face compliance issues and additional costs to meet these standards, impacting their profitability. Following the China crackdown in 2021, a large number of miners migrated to countries such as the USA with cheaper electricity and often it being renewable energy. The move out of China accelerated the adoption of more efficient mining rigs, which offer double the hash power for the same amount of electricity. This shift has improved the security-to-energy ratio of the Bitcoin network.

Emerging Trends and Future Outlook in Bitcoin Mining: 

1. Focus on Energy Efficiency:

Declining electricity prices, particularly notable in the U.S., where major Bitcoin mining operations are situated, offer a favorable environment for the industry. The U.S. contributes significantly to Bitcoin's hash rate, the total computational power driving transaction processing. Lower electricity costs are anticipated to curb rising Bitcoin production expenses amidst a surge in hash rate, ensuring large miners can maintain profitability.

Previously, power expenses were pivotal in a bearish market, impacting miner survival. Global average electricity rates for Bitcoin mining hover around $0.05 per kWh, with larger firms securing rates as low as $0.03/kWh, further aiding profitability amidst heightened competition and surging hash rates.

2. Energy Prices Declining:

The conflict in Ukraine caused disruption in global energy markets in late 2022 and early 2023, leading to a surge in natural gas prices. As natural gas often dictates energy costs, this impacted power expenses for miners and hosting rates. However natural gas prices decreased from their highs by over 72%, bringing relief to miners with flexible energy rates. Various factors, including increased US natural gas production and surplus storage, contributed to the price drop. Mild winter weather reduced heating demand, and lower energy costs lowered median power expenses. 

Renewable energy adoption has also reduced costs as incentives, subsidies, and tax breaks are offered by many regions to encourage the shift toward sustainable practices. Many miners have also established operations next to renewable grids that have access to energy, these grids are often in remote areas where it's hard to transport the energy to grids that can utilize it. In the USA over 82% of new generation sources are renewable energy.

3. Shift to Immersion and Hydro-cooling: 

In the last year, a significant trend has emerged in Bitcoin mining, with an increasing number of miners exploring immersion cooling and water cooling solutions to enhance the efficiency and sustainability of their operations. These innovative cooling methods offer several advantages over traditional air cooling.

Immersion cooling involves submerging mining hardware, such as ASICs (Application-Specific Integrated Circuits), in a non-conductive cooling liquid. This method provides more effective heat dissipation, reducing the risk of overheating and extending the lifespan of the equipment. The dense cooling medium allows for better heat transfer and enables miners to operate their hardware at higher clock speeds, potentially increasing mining output.

Hydro-cooling, on the other hand, uses water blocks or tubes to transfer heat away from mining components. This method is known for its efficiency in dissipating heat and can be combined with traditional air cooling for optimal results. Water cooling setups are often customizable and can be tailored to the specific needs of the mining operation.

These cooling trends align with the ongoing push for energy efficiency in the cryptocurrency industry. By adopting immersion cooling and water cooling, miners aim to reduce the carbon footprint associated with energy-intensive mining activities. As the industry continues to evolve, it's likely that we will witness a growing adoption of these advanced cooling methods, but currently, it comes at a higher capex and is more expensive to deploy than an air cooling setup. Many of the new cheap sources of energy are also in remote, harsh, and hot climates such as Marathon's new operations in the Middle East where air cooling is not an option because of severe heat and sand storms.

Immersion cooling set up

4. Leveraging Waste Energy: 

In a fascinating twist, the realm of Bitcoin mining is witnessing an unconventional energy source: landfills. Contrary to scavenging for antiquated treasures, today's miners are eyeing landfills to harness waste energy for generating new Bitcoins. Pioneers like Vespene Energy and XcelPlus International have ventured into this innovative sector, paving the way for an emerging trend. Moreover, whispers of other analogous projects operating in stealth mode have circulated, hinting at a surge in landfill-powered mining initiatives set to make public debuts within the coming years.

These landfill-based endeavors are not merely outliers but are gaining recognition on a broader scale. A recent study delving into the environmental impact of Bitcoin mining caught the attention of no less than the White House, which explicitly acknowledged and discussed the role of landfill-focused Bitcoin mining projects. As global perspectives on sustainable energy shift, such novel approaches underscore the industry's dynamic nature, sparking conversations about repurposing waste energy to fuel the digital gold rush.Today's landfills are becoming unassuming powerhouses, helping to drive the future of both cryptocurrency and waste management through innovative synergy.

Landfill gas which Bitcoin Miners will use for energy sources

5. Natural Gas Flaring:

Utilizing flared natural gas to generate cheap electricity for Bitcoin miners has seen an uptake in the past 2 years as it offers several compelling benefits. By repurposing flared gas that would otherwise be wasted as a byproduct of the oil and gas industry, Bitcoin mining operations can access a cost-effective energy source, leading to reduced operational expenses. Moreover, this practice allows for the monetization of a previously discarded resource, effectively transforming waste into a valuable asset. The process also converts methane into carbon dioxide which is 25 times less potent to the atmosphere than methane.

Flaring natural gas for mining also holds significance for operations in remote or off-grid locations, where traditional electricity sources may be limited or economically unviable to establish. By incorporating flared natural gas into the energy mix, bitcoin miners can help alleviate strain on existing power infrastructure, helping to provide extra power during peak demand periods, contributing to a more stable and efficient energy distribution if on grid. Several partnerships have emerged as a result such between mining companies and oil and gas producers seeking to mitigate flaring through alternative usage.

Crusoe Energy Flare-mitigation Center in Montana

6. Global Distribution:

The distribution of Bitcoin miners around the world is influenced by a combination of factors, including electricity costs, regulatory environments, technological infrastructure, and access to mining hardware. The mining industry is mainly concentrated in several areas. 

China (formerly dominant): Historically, China was a dominant player in Bitcoin mining due to its abundant and relatively cheap coal-based electricity. However, the Chinese government implemented a crackdown on cryptocurrency mining in 2021, leading to the closure of numerous mining operations and shifting the landscape. Furthermore, China put a ban on domestic mining as of early 2022.

North America (now dominant): The United States and Canada have been increasingly attracting Bitcoin miners due to their relatively stable regulatory environments, access to clean energy sources (such as hydroelectric power), and well-developed technology infrastructure. Several of the largest mining operations have been established in these countries such as Riot Blockchain’s Giga factory. Currently, the USA sits as the hotspot for Bitcoin mining with over 60% of mining residing in Texas.

Europe: Countries like Norway, Sweden, and Iceland are favored by miners due to their renewable energy sources and cool climates, which help with cooling mining equipment. Norway in specific has abundant hydroelectricity and has attracted companies such as Bitfury, Bitzero, and Bitdeer.

Russia: Russia has a significant share of Bitcoin mining due to its vast land area, access to cheap electricity in some regions, and a relatively permissive regulatory environment. However, the regulatory stance can vary across different parts of the country. However with the war in Ukraine though several companies who were operating in Russia such as Compass Mining had to shut down over US and EU sanctions. The Russian government has been subsidizing Bitcoin mining working with companies such as BitRiver to set up infrastructure. Russia has now surpassed Khazakhstan as the 2nd biggest hotspot for mining.

Central Asia: Countries like Kazakhstan and Uzbekistan have seen growth in Bitcoin mining due to lower energy costs and relatively lenient regulations. However, mining has slowed down drastically in Kazakhstan (Formerly the second-largest hub for mining) as local grids experienced blackouts from over-usage of power. Governments cracked down hard on miners shutting down and reducing capacity significantly at facilities. 

South America: Some South American countries, such as Venezuela, Argentina, and Paraguay have seen miners setting up operations, often driven by the availability of low-cost electricity. However, political instability and regulatory uncertainties can pose risks. Paraguay has been a recent hub as a hydropower deal with Brazil fell through leaving the country with excess hydro electricity. Companies such as Bitfarms have secured large-scale agreements to build facilities in Paraguay. 

Middle East: Certain Middle Eastern countries, including, the UAE, have seen Bitcoin mining operations establish themselves, attracted by subsidized energy costs. Political and regulatory factors play a significant role here. The environment is also very hot so immersion cooling is needed for facilities. Marathon Digital recently formed a joint venture with Zero Two (Backed by Abu Dhabi’s sovereign Wealth Fund) to create the first large-scale immersion Bitcoin mining operation. 

7. Ordinals and their Impact on Bitcoin Mining Fees: 

The emergence of ordinals in the realm of Bitcoin during 2023 has brought about an unexpected and noteworthy transformation, leaving a discernible imprint on the landscape of transaction fees. Ordinal Inscriptions, similar to NFTs, are digital assets inscribed on a satoshi, the lowest denomination of a Bitcoin (BTC). This breakthrough has kindled a cascade of possibilities, notably including the tokenization potential of the BRC-20 protocol. The trend led to 14.4 million inscriptions and $55 million worth of transaction fees. For the first time in history, the transaction fees surpassed block rewards for miners. This presents a welcomed counterbalance to the potential future quandary posed by shrinking mining rewards due to network difficulty increases and future halvings.