(Bloomberg) -- The digital gold rush is fading in Texas, as bitcoin miners struggle financially and some fear a wasteland of unfinished facilities and abandoned equipment.
In their quest to become a crypto-mining powerhouse, Texas miners have been lured by cheap electricity and lax regulations, leading many to borrow billions to buy expensive equipment and build infrastructure.
However, rising energy costs, a sharp drop in bitcoin prices and increased competition have reduced profitability and made it harder for miners to pay off debt. Some of them are on the verge of bankruptcy.
"There is as much property as trash everywhere." said Mason Gaba, CEO of Austin, Texas-based mining company Blockware Solutions. "I get reports of switches and switches, mobile data centers and mining ships, they're just sitting there."
There is a lot to lose if the Bitcoin mining industry collapses. First, local authorities offered such incentives as tax breaks worth tens of millions of dollars. The region may not be able to produce much-needed electricity to avoid another energy crisis. Many developers have invested heavily in creating Bitcoin mining sites. Currently, the average cost per megawatt of mining infrastructure capacity in the state is about $300,000, Jabba said, which is the high end of the range.
Iris Energy said it will assess how much and when to build after closing the two plants at the Childress site, initially 20 megawatts each, and using a $108 million loan. The company plans to bring a capacity of 600 megawatts to the site. Compute North, which is building another 600-megawatt facility in Hood County, filed for bankruptcy in September.
Argo Blockchain planned to build an 800MW mining farm in Dickens County earlier this year, but the mining company is struggling with liquidity. They warned in October that they would have to "wind down or cease operations" unless new funds were raised. Core Scientific warned of potential losses after announcing plans to build a 200 megawatt facility near Dallas.
The company represents more than a dozen crypto mining companies that plan to build facilities in the cryptocurrency mining industry in Texas. The Texas grid is expected to generate up to 7 gigawatts of electricity demand, with an additional 3 gigawatts expected by 2023, according to the announcement and filings with the U.S. Securities and Exchange Commission.
A spokesman said Lancium, which has two sites in Taylor and Pecos counties with a capacity of more than 1 gigawatt, will take several years to fill the facility. In addition to mining, the company plans to host various applications such as high-performance computing.
Riot Blockchain, Argo, Compute North, Core Scientific, Genesis Digital Assets and Bitdeer did not respond to requests for comment.
The many strong supply chain challenges during Covid were not necessarily a hindrance. said Matthew Kimmel, digital asset analyst at CoinShares. "The only limitation is money."
Because of the Russian invasion of Ukraine and the Texas summer heat, energy costs at the mine are high year-round. The tightening of monetary policy by the Federal Reserve and the encouragement of major crypto companies has led to a more than 60% increase in the price of Bitcoin this year.
After China banned crypto miners last year, Texas is trying to bridge the gap to boost the state's booming economy. But with mining dependent on the use of electricity, the new wave of demand could strain the power grid, which is trying to recover from the disaster of a severe winter storm in February 2021 that left millions in the dark for days and killed more than 200 people. people.
Gov. Greg Abbott has described mining as a catalyst for the grid because engines can run too fast during times of stress and waste a lot of wind and solar energy. Being able to safely deviate from such overwhelming demand would be helpful, but the rules that require miners to perform in certain ways in certain market conditions are still being debated. Critics worry that current practices allow crypto miners to avoid the costs associated with upgrading the network to serve all user needs.
The abbot decided to make a choice.
As of Oct. 20, Texas had 1.5 gigawatts of cryptocurrency mining capacity, mostly bitcoin, of which 37 gigawatts were vying to connect to the state grid, according to the Electric Reliability Board of Texas. This queue has doubled in six months.
While waiting lists earlier this year indicated that miners' demand for energy was increasing, the numbers could still rise. Energy brokers and mining companies submit multiple applications for the same mining site because these applications do not require a deposit.
Some apps may not even work because people with little bitcoin mining experience may abandon their plans, said Ethan Vera, chief operating officer of cryptocurrency mining company Luxor Technologies.
© Bloomberg LP, 2022