Negative Oil Prices Could Hurt Bitcoin Miners Who Use Flared Gas
North American bitcoin miners who've bet on fossil-fuel extraction to power their rigs are watching the oil markets closely as prices sink to historic lows.
The few North American bitcoin miners who’ve built their businesses around fossil-fuel extraction are watching the oil markets with more excitement than fear, they say, as oil prices sink to historic lows.
Oil-extraction companies need to reduce gas emissions for environmental reasons. So, instead of flaring off excess gas on site, some bitcoin mining firms – like Upstream Data in Canada, Crusoe Energy in Colorado and DJ Bitwreck in Texas – capture the excess gas to fuel hundreds of bitcoin-mining computers.
The trouble is, if oil market collapse shuts these power sources down then bitcoin miners can’t capture their waste.
When the price of bitcoin drops dramatically, as it did in March, bitcoin mining can quickly become unprofitable. Some mining operations shut down rather than lose money. Only larger, industrial farms can withstand months without profits if the bitcoin price remains low.
Entrepreneurs need to look for cheap power sources – and that’s where oil-abstraction waste products come in.
In Texas, a bitcoin miner who goes by the alias DJ Bitwreck said he’s building new hardware for capturing flare gas. His team, with four co-founders total, will take another five months to build these devices.
“We've utilized roughly 40 kilowatts annually, which has really been our testing and proof-of-concept phase,” said DJ Bitwreck, who’s seeking to add at least 1 megawatt of power from flare gas. “We are looking for sites that would let us come in and put a generator and a shipping-container-size mining hut at the flare site. Most of all, flare gas is a headache and problem for producers, but their problem is our gold mine.”
Great American Mining co-founder Marty Bent, already running one such bitcoin mining operation in North Dakota since December 2019, said if the oil companies stop operating “there isn't any gas byproduct to consume.” On the other hand, though, Bent estimated that on his site alone there are “hundreds” of megawatts of power that could be converted into bitcoin.
Negative oil prices aside, from DJ Bitwreck’s perspective, there’s no point in miners pivoting strategies until after May’s bitcoin halving, which reduces the rewards bitcoin miners can earn.
Wait till June
All of the above-mentioned startups remain moderately profitable and lean, even if the price of bitcoin doesn’t climb in 2020.
Still, it remains to be seen what would happen to all but a few massive bitcoin farms if both oil and bitcoin prices stay low throughout the year.
“We expect the waters to get very choppy but we're actually excited for it,” DJ Bitwreck said. “That's why we aren't buying equipment right now, we're ideally looking to pick equipment up off other ships that capsize in the choppy waters.”
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.
Learn more about Consensus 2023, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.