To The Moon

Please find and follow my YT channel (nerdbull1669) for Daily SG and US Stock Watchlist. Do follow me as I share quality stock pick for Daily Watchlist. OPEC’s decision to cut production, announced last night, is expected to cause gas prices to go up. This will also indirectly impact the prices of energy. Bitcoin mining companies uses a lot of energy to run the infrastructure to produce their revenues (e.g., Bitcoin) I would look at the 2 largest public Bitcoin Mining companies(by Market Cap). First, I would like to share some information of what is Bitcoin Mining. What is Bitcoin Mining? Bitcoin Mining is a process by which mathematical equations (complex cryptographic hash puzzles) to process transactions (validated digitally on the Bitcoin network and added to the blockchain ledger). Once that is done, new BTC tokens will be created, and miners are rewarded for their efforts with the token. Miners would have to spend money on equipment and electricity bills as they take part in the proof-of-work (POW) consensus mechanism. This is where miners would feel the impact when there is an increase in oil and energy prices. Bitcoin Hash Rate Bitcoin’s total network hash rate will determine the amount of energy the network consumes. Lower network hash rate will result in less energy consumption. Higher hash rate will increase the amount of energy used by the network to mine each new block. So, the network hash rate directly impacts the amount of energy consumed by the network. Difficulty Increases, Speed of Supply Reduce To mine bitcoin profitably which companies like MARA, RIOT do. Investment in sophisticated hardware and infrastructure is needed because as the difficulty of the puzzles increase, the speed at which Bitcoin’s supply can further expands will be reduced significantly. What Kind of Energy Does Bitcoin Consume? Bitcoin miners would go to low cost and predictable energy sources. The question is these energy sources emit more CO2 than others, but the majority of the network mining capacity is powered with renewable energy. How Bitcoin Mining Companies Earn its revenue Large bitcoin mining companies invest and own thousands of devices (commonly known as application-specific integrated circuit devices, or ASICs.) These devices can solve the problems faster than any human. The total value of the BTC(Bitcoin) they receive in return will be their company’s revenue. The operating cost of these large bitcoin mining companies also includes the electricity needed to power the devices, maintenance for the mining farms’ expensive cooling systems, personnel, and other operating costs typical to any business. An increase in energy prices does not spell well for them as their operating cost will increase to mine the same amount of BTC(Bitcoin). Here is a look at the Bitcoin Energy Consumption. It has been increasing due to more individual miners coming onboard. Large companies like Marathon Digital Holdings Inc (MARA) has also increase their infrastructure to increase their BTC output. So the same amount of cost paid for minimum TWh per year would be higher this year compared to previous year. To overcome this cost, some of the larger bitcoin mining companies are looking at green energy. But for now, let us look at the 2 largest public Bitcoin Mining companies (as of 24 March 2023). $Riot Blockchain, Inc.(RIOT)$ Riot Blockchain (RIOT) is at the head of the list of top bitcoin mining companies with a market cap of $1.61bn. From: https://www.riotplatforms.com/bitcoin-mining RIOT’s primary mining location is in Rockdale, Texas. They operated 88,556 mining rigs by the end of 2022. They offers their facilities to other large-scale mining businesses. This helps the other businesses to establish their own farms by taking advantage of the RIOT’s proprietary infrastructure. Their energy cost will be much higher this year as their cost not only comes from Bitcoin mining operations but also their data center hosting. Moreover, they have a higher hash rate, which mean they consume more energy per second to mine one bitcoin. If we consider any drop in Bitcoin prices, which might happen as more small private miners would consider stop mining to wait for a drop in energy prices. RIOT might need to look into how to save cost in operating their data center hosting business. $Marathon Digital Holdings Inc(MARA)$ Marathon Digital (MARA) is the second stock on the list of bitcoin mining companies with a market cap of $1.41bn. Marathon has facilities in South Dakota, Nebraska, Montana and Texas. In the recent news release by MARA (dated 03 Apr 2023). They have increased Bitcoin Production 21% Month-Over-Month, Producing a Record 825 BTC in March 2023 and a Record 2,195 BTC in Q1 2023 They have also increased Hash Rate 64% in Q1 2023 to 11.5 EH/s as of March 31, 2023 As of April 1, Marathon holds reserves of 11,466 BTC, all of which are now unrestricted. MARA opted to sell 750 BTC during the month of March and intends to sell a portion of its bitcoin holdings in future periods to support monthly operations, manage its treasury, or for general corporate purposes. I would think this is a good move to manage the Bitcoin price volatility and also to manage to the increase in energy prices. A better hash rate would mean the mining is more efficient, though it consume more energy. This might help to reduce the average cost of mining 1 Bitcoin. Summary There are many more bitcoin mining stocks, they might not have the luxuries to manage the price impact like RIOT and MARA. We might see a slowdown in the Bitcoin mining production if Bitcoin price really goes back to $25K range. It will not be economical efficient to mine one Bitcoin, having to spend more on energy, hence increasing the cost of producing one Bitcoin. One point to note is that MARA has installed some energy efficient mining servers which are approximately 30% more energy efficient than the prior generation of mining servers. They are expecting to have approximately 23 EH/s of capacity installed near the middle of 2023. For investing in RIOT or MARA. I will hold on to my MARA, and monitor and see how they will be managing the installation of these energy efficient mining servers. Appreciate if you could share your thoughts in the comment section on what do you think of the impact of higher energy prices on Bitcoin mining? Do like, share and comment on this article if you find this trading thought useful. @TigerStars appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts. Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.