This year, there has been a concerted effort among Bitcoin mining pools and facilities in North America to contribute a higher share of the overall hash rate of the Bitcoin network from the continent, providing critical decentralization to this system. But this has not been without its challenges. Bitcoin’s mining environment is one with high costs and a challenging supply chain.
To help boost these new entrants in North America, Bitcoin-focused companies play a role typically filled by mainstream financial institutions such as banks, shaping a new niche in providing financial advice and services to the new North American mining industry.
The Financial Challenges of Bitcoin Mining
Despite the steady rise in the price of bitcoin this year, miners are not necessarily benefiting, as intense competition forces the difficulty rate higher and the race for block rewards becomes more intense.
“The bitcoin difficulty and price adjustment algorithm acts as a natural hedge for mining,”
Ethan Vera, cofounder of Luxor’s globally distributed mining pool, said Bitcoin Magazine. “When the price goes up, you make less bitcoin as a reward. So if you are mining on a bitcoin-denominated basis or have only hedged your bitcoin price, the risk profile is actually higher. ”
Many mining companies need new tools or need to upgrade to newer models of ASICs, such as Bitmain’s Antminer S19 pro or Whatsminer M30S ++ MicroBT, in order to be competitive in this landscape. But there is a shortage of this updated mining equipment.
“Bulky introductions for the most powerful bitcoin mining hardware from major manufacturers have already queued up to May next year, suggesting an increased level of institutional demand for such equipment,” The Block recently reported. “The overall supply shortage follows the jump of bitcoin prices since Q3 this year, and this is due to increased institutional demand for bitcoin mining equipment and the limited wafer capability from silicon providers Bitmain and MicroBT.”
As of this writing, Bitmain’s official website shows that its flagship S19 Pro is no longer available.
New Solutions to Ongoing Challenges
Amid these financial challenges, an increasing number of Bitcoin mining companies are becoming open and transparent about their operations, a departure from what has been a largely opaque industry.
“There are disadvantages to letting everyone know what you’re doing, but it’s also a benefit,” Merrick Okamoto, CEO of the Marathon mining company, told the audience at a recent mining conference. “It gives us unique access to capital markets. We have made two money in the last year. ”
Many companies in the cryptocurrency space are positioning themselves to offer financial services to mining companies looking for a foothold in the industry, providing capital for new equipment, advising on investments and optimizing timing and helping them manage risk .
For example, DCG Foundry, a subsidiary of cryptocurrency-focused venture capital firm Digital Currency Group, was founded in 2019 to provide capital and intelligence to North American digital asset businesses. The company currently offers three services for the mining ecosystem: equipment financing and acquisition, mining and staking and consulting and advisory services.
Ryan Porter, of Bitcoin-focused financial services company BitOoda, is a registered securities and derivatives broker of the Financial Industry Regulatory Authority- (FINRA). He explained to me Bitcoin Magazine that mining operations approached him seeking a variety of financial services, including raising capital to purchase mining equipment and signing long-term contracts with power providers.
“These companies are still largely excluded from the banks,” said Porter. “If they want to raise debt finance to buy equipment or build their website, that capital now comes from private or family equity offices or by using financial products like our hash power contract. Where companies like ours take these mining companies from idea, to site selection, construction, power advisory, financing, equipment acquisition and then, when operational, financial optimization of the facility . ”
As more groups move forward with the goal of contributing to one of Bitcoin’s most vital industries of North America, basic financial services offered by these bitcoin-focused groups and others appear to be a key aspect strengthen the devolution of mining.