Regulatory

Grow or Become Obsolete

Power Markets for Bitcoin Miners, 7/10/23

Key Takeaway #1

Mining operations are becoming more advanced, leading to increased internal optimization needs and/or expanded business lines.

Key Takeaway #2

High Performance Compute is a popular expansion option, along with mining at unique sites such as flared and landfilled gas.

Key Takeaway #3

Internal optimization opportunities include trading/hedging and implementing immersion technology.

Key Takeaway #4

BitOoda has deep expertise to help you develop the strategy that best optimizes your setup. Mining economics improved with higher BTC prices. Gas prices dipped in the near-term, whereas power prices stayed flat.

We at BitOoda have been forecasting the inevitable margin compression of the mining industry as we moved from garaged operations to larger-scale industrial operations. A growing number of analysts are now highlighting that miners are in search of revenue to fight back the margin compression from high performance computing (HPC), including potentially running facilities from landfill gas. However, we would caution that outside remedies are not always the best approach. There are still plenty of internal operational moves that can reduce cost and generate revenue, and are more concrete and within your capability and control. Process improvements – from evaluating immersion technology to improved hedging/trading strategies – should be investigated. For example, we have previously highlighted options such as trading opportunities and internal solar generation to help miners manage this margin compression. HPC offers miners a synergistic opportunity, although it comes with challenges such as customer acquisition. Trading requires separate expertise, but it does integrate with your largest variable expenses, so these efforts would add value outside just the trading activity. Pursuing landfill gas or even flared gas operations requires added dependence on a separate fuel supplier, whose objectives are not always aligned with yours as these suppliers are being solicited with multiple competing offers. Landfill gas and even agriculture/livestock gas have been more popular recently, as California has been implemented a Low Carbon Fuel Standard (LCFS) requiring refiners to balance their production of fuels with LCFS credits – hence another reason why California’s gasoline prices are the most expensive in the country.

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We at BitOoda have been forecasting the inevitable margin compression of the mining industry as we moved from garaged operations to larger-scale industrial operations. A growing number of analysts are now highlighting that miners are in search of revenue to fight back the margin compression from high performance computing (HPC), including potentially running facilities from landfill gas. However, we would caution that outside remedies are not always the best approach. There are still plenty of internal operational moves that can reduce cost and generate revenue, and are more concrete and within your capability and control. Process improvements – from evaluating immersion technology to improved hedging/trading strategies – should be investigated. For example, we have previously highlighted options such as trading opportunities and internal solar generation to help miners manage this margin compression. HPC offers miners a synergistic opportunity, although it comes with challenges such as customer acquisition. Trading requires separate expertise, but it does integrate with your largest variable expenses, so these efforts would add value outside just the trading activity. Pursuing landfill gas or even flared gas operations requires added dependence on a separate fuel supplier, whose objectives are not always aligned with yours as these suppliers are being solicited with multiple competing offers. Landfill gas and even agriculture/livestock gas have been more popular recently, as California has been implemented a Low Carbon Fuel Standard (LCFS) requiring refiners to balance their production of fuels with LCFS credits – hence another reason why California’s gasoline prices are the most expensive in the country.

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Grow or Become Obsolete

Making fuel under a LCFS can come from bio processes (such as landfill) or agricultural/livestock processes. This is not new technology or a new magic bullet. Capital costs and the need for a consistent supply will likely continue to be impediments to using landfill and ag/livestock fuel. Additionally, if you move into this field, be ready for the competition. This is not meant to deter miners from looking beyond your core operations; rather, we would advise you to develop a comprehensive cost/benefit analysis that compares internal process improvements vs. the various external options. Many miners are well positioned to enter HPC, whereas many might be more inclined to focus on trading. To some degree, your mining site will indicate where you should focus your growth potential. At BitOoda, we have encompassing expertise to bring out the best of your organization, from HPC to energy alternatives to trading to immersion expertise.

Figure: Regular Gasoline Prices
Source: EIA

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Miner WoW View

Mining economics improved week on week
The S19JPro breakeven price is between $80-$90/MWh.

Figure: Weekly Average Cash Contribution After Power Expense Note: Assumes a PUE of 1.12
Source: BitOoda, Bloomberg, Coinmetrics
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Henry Hub WoW

Henry Hub was lower in the near term, while the rest of the curve stayed the same.

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PJM WoW

For the PJM region, we usePJM-W hub as the benchmark.PJM-W is the most tradedpower hub in the US.
PJM power saw essentially nochange, which shifted nearterm heat rates up.

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ERCOT WoW

For the ERCOT region, we useERCOT-North hub as the benchmark. ERCOT-North is the most traded power hub for ERCOT.
ERCOT saw no change.

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CAISO WoW

This slide uses the NY-G hub as the benchmark for the NYISO region. NY-G is the most traded power hub in NYISO
NY-G saw only minor changes.

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NYISO WoW: NY-A

This slide adds NY-A for theNYISO region.
NY-A prices are flat WoW.

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Disclosures

Purpose
This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda.io.

Analyst Certification
David Bellman, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships. Conflicts of Interest This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation.

General Disclosures
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We at BitOoda have been forecasting the inevitable margin compression of the mining industry as we moved from garaged operations to larger-scale industrial operations. A growing number of analysts are now highlighting that miners are in search of revenue to fight back the margin compression from high performance computing (HPC), including potentially running facilities from landfill gas. However, we would caution that outside remedies are not always the best approach. There are still plenty of internal operational moves that can reduce cost and generate revenue, and are more concrete and within your capability and control. Process improvements – from evaluating immersion technology to improved hedging/trading strategies – should be investigated. For example, we have previously highlighted options such as trading opportunities and internal solar generation to help miners manage this margin compression. HPC offers miners a synergistic opportunity, although it comes with challenges such as customer acquisition. Trading requires separate expertise, but it does integrate with your largest variable expenses, so these efforts would add value outside just the trading activity. Pursuing landfill gas or even flared gas operations requires added dependence on a separate fuel supplier, whose objectives are not always aligned with yours as these suppliers are being solicited with multiple competing offers. Landfill gas and even agriculture/livestock gas have been more popular recently, as California has been implemented a Low Carbon Fuel Standard (LCFS) requiring refiners to balance their production of fuels with LCFS credits – hence another reason why California’s gasoline prices are the most expensive in the country.

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