Before reading this article, I advise you to read my paper which succinctly explains the factors to consider when setting up a bitcoin mining site: Two crypto-mining giants to follow. To sum up, these companies will look for favorable geographical areas for the mining and production of cryptocurrencies, especially in countries or states where the cost of electricity is low. Thus, they will be able to operate their machines without stopping with an optimal energy cost.
The more these companies deploy mining hardware, the more they raise their hash rate (computing power), i.e. they have more and more chance of validating transactions on the Bitcoin network and so on. be paid more regularly in BTC. A sort of race for computing power. We thus understand why the global hash rate is progressing rapidly (more and more mining equipment is connecting to the network in the hope of being paid in bitcoins).
Total Hashrate (TH/s) of the Bitcoin network
Bitcoin mining companies express their computing power in exahash (EH/s). The higher the rate, the more the mining park performs a significant number of calculations. To give you a little idea:
- 1 kH/s is 1,000 hashes per second;
- 1 MH/s is 1,000,000 hashes per second;
- 1 GH/s is 1,000,000,000 hashes per second;
- 1 TH/s is 1,000,000,000,000 hashes per second;
- 1 PH/s is 1,000,000,000,000,000 hashes per second;
- 1 EH/s is 1,000,000,000,000,000,000 hashes per second.
Now that we understand that the heart of the activity of these companies is to be able to achieve the most calculations with the lowest possible cost, let’s explore these miners 3.0.
Performance of major mining companies
Source: Seeking Alpha
If we calculate the performance of these companies for two years, we notice that they all outperform bitcoin. As an example, where BTC is 346%, Marathon Digital Holdings (MARA) is 2300% and Riot Blockchain (RIOT) is 1220%.
These companies are raking in bitcoin at an increasingly high rate as their mining fleet grows. We should therefore see the global hash rate progress in the coming months/years provided that the price of bitcoin continues to appreciate over time. Yes, because if these companies produce bitcoin at the current price ($42,000), it is not impossible, and it is even very likely, that the price will fall at one time or another. A phase commonly called “bear market”. Thus, the price of bitcoin could be halved and therefore the remuneration of these mining companies also halved. But this potential fall would probably not make them tremble. They would answer me that, as usual, the price of bitcoin would rebound even stronger in the months following this fall and they would therefore become even stronger.
Let’s take stock of the current situation in terms of hash rate.
A hash rate explosion in sight
Hash rate by company
Source: Seeking Alpha
Currently, the company with the highest hash rate is Core Scientific (CORZ) with 7.5 PE/s, i.e. double Marathon Digital which has 3.6 PE/s. s. But other factors must be taken into account. In particular the investments made by these companies to increase the capacity for mining cryptocurrencies.
In this way, we observe that Marathon Digital should become the leader in hash rate by 2023 by seeing its computing power increase from 3.6 EH/s to 23.3 EH/s. This increase is due to the expansion of the mining park which should increase from 27,280 pieces of equipment to more than 200,000. Cipher Mining (CIFR), another mining company, should make a significant place soon as we can see on the graph above. It is simply building five mining hubs and should have the capacity to post a cumulative hash rate of 19.5 PE/s.
Another element to take into account is the holding of bitcoins in the balance sheet of these companies, in other words, the number of bitcoins that these companies already have in possession. Place to the graph then we comment next.
Mining companies that own more than 1000 bitcoins
Marathon digital has the largest reserve of bitcoins. At the current price ($42,000), this reserve is equivalent to (8133 x $42,000) more than $340 million.
Although bitcoin is the most mined cryptocurrency of all, some of these companies have decided to mine other digital assets. Typically, Hut 8 and Hive, among others, use their infrastructure to mine ether from Ethereum.
On the other hand, if these companies outperformed during the bitcoin bull run of 2020-2021. The beginning of the year was gloomy for these actors.
Three-month performance of mining companies vs bitcoin
Source: Seeking Alpha
While bitcoin shows a drop of -34% over three months, Marathon Holdings, which had outperformed the digital currency in previous months, this time shows a drop twice as large (-63.96%) compared to BTC. Only Core Scientific manages to resist better, or rather bounce back better, by posting a negative drop of -22.14% over the same period.
Let’s do a check in
Mining companies outperformed bitcoin during bitcoin’s 2020-2021 bull run. A way for institutions, professionals and individuals to indirectly expose themselves to bitcoin. On the other hand, it is clear that when the digital currency falters downward, the wind of panic is all the more violent on the share prices of mining companies.
However, we must ask ourselves several questions before throwing ourselves body and soul into our securities account to buy shares in mining companies:
New ways of investing are emerging
Whereas in the past it was difficult for institutionals and professionals to “easily” gain exposure to digital assets, today there are a multitude of investment options. ETF Bitcoin Futures, crypto investment funds, multiplication of exchange platforms and perhaps, soon, a Spot ETF. Alternatives that can now seduce these investors to expose themselves to bitcoin at the expense of mining companies
Exposure over bitcoin
The heart of the business of these companies is closely linked to the price of bitcoin. As we have seen previously, mining companies have so far shown little resilience in the face of digital currency volatility. In other words, you have to have a strong heart to speculate on the price of these mining specialists. From a long-term perspective, investing in these companies is relatively risky. Especially since the global regulatory context is still unclear regarding the regulation of cryptocurrencies and if bitcoin were to fall drastically following unfavorable regulation, these companies would be in very bad shape.
Exposure to energy expenditure
As we have seen, these companies are extremely dependent on electricity and in particular on the energy consumption of their mining equipment. Although they are turning to renewable energy solutions (hydraulic, geothermal, solar, wind, etc.), these companies will have to find more and more energy in their view of achieving an increasingly high hash rate. to maximize their yields. We are still not immune to regulations going against the initiatives of these mining companies, in particular for the sake of increasing energy waste.
The future is vague, not to say opaque on this side. From one country to another the regulatory framework is completely different. Take on the one hand El Salvador, which has made bitcoin the official currency of the country and which is carrying out initiatives in favor of cryptocurrency mining, and on the other, China, which has simply banned cryptocurrency mining on its territory. , but which has at the same time developed its own central bank digital currency. On the side of the Old Continent and in the country of Uncle Sam, the regulatory framework remains vague although the mining of cryptocurrencies is not prohibited. We are therefore not immune to a regulatory blow even if time plays in favor of these players since they grow over time and take with them many private, professional and institutional investors.
Bitcoin purists and maximalists invest directly in the digital asset for the characteristics it delivers: decentralization, transparency, uncensorability, security, independence… In other words, putting value back in the hands of a centralized company does not reflect the philosophy of Bitcoin and its aficionados. Incidentally, Bitcoin was started after the 2008 financial crisis by Satoshi Nakamoto, as an anarcho-capitalist response to “a corrupt and manipulable financial system”. In that sense, pro-bitcoins and those who will become pro-bitcoins are unlikely to rub their wallets in these mining companies.
Thus, we understand that the future is not easy to predict for mining companies. Although they display stratospheric performances which have the effect of attracting many speculators, having a long-term investment strategy seems relatively complicated at present. However, some of the mining companies are not only focused on cryptocurrency mining. Core Scientific and Riot Blockchain host blockchains and data centers to optimize its revenue streams. But on these subjects, I will not go further, I will concoct specific articles for you on each mining company. To be found very quickly in the columns of Zonebourse.