Power Markets

Bitcoin Miner Strategies – Power as a Centerpiece

Power Markets for Bitcoin Miners, 7/31/23

David Bellman

Key Takeaway #1

As the bitcoin mining industry matures, participants need comprehensive strategies that encompass the major pieces in mining operations, including hardware, BTC, and power.

Key Takeaway #2

Power touches all aspects of mining operations and can influence each segment.

Key Takeaway #3

From site selection to hardware to hedging out hash, it is important to consider power usage and cost.

Key Takeaway #4

Hedging strategies (reducing risk exposure) require a comprehensive plan to not only de-risk fuel cost, but also product cost to provide some margin certainty.

We at BitOoda have developed a number of strategies for miners centered around power. Our team is helping this industry move toward more comprehensive strategy development focused on miners’ core competencies, and helping miners execute, maintain, and improve those strategies over time.

Power is the life blood of the bitcoin industry. It is no different than other energy-intensive industries, but other mature industries have spent decades perfecting their ability to manage the power risk. BTC miners have the opportunity to learn from that experience, and have additional advantages given the unique capability of miners to ramp/turn off/on quickly compared to other industries. With hash rates near all-time highs, the halving coming up, and the amount of capital being deployed in this sector, it is critical to develop a comprehensive, cohesive strategy for your mining operation with power as a core element.

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We at BitOoda have developed a number of strategies for miners centered around power. Our team is helping this industry move toward more comprehensive strategy development focused on miners’ core competencies, and helping miners execute, maintain, and improve those strategies over time.

Power is the life blood of the bitcoin industry. It is no different than other energy-intensive industries, but other mature industries have spent decades perfecting their ability to manage the power risk. BTC miners have the opportunity to learn from that experience, and have additional advantages given the unique capability of miners to ramp/turn off/on quickly compared to other industries. With hash rates near all-time highs, the halving coming up, and the amount of capital being deployed in this sector, it is critical to develop a comprehensive, cohesive strategy for your mining operation with power as a core element.

When it comes to site selection, power pays a crucial role from power access to purchase price. There are sites that may be the best for power prices, but the infrastructure build is too high in terms of time and cost. Alternatively, we have seen sites that are perfectly ideal for an interconnection, but the cost structure for power is just too high – particularly for some contracts with an open fuel clause and limited credits for flexibility.

When evaluating build-out options, power still becomes a critical element. Which technology will optimize the power capability for the location? How should you think about operating the facility – air cooled or immersion? Both of those questions can be answered by having a comprehensive strategy that defines what type of miner you want to be and what approach best fits your culture.

We have previously discussed the importance of power contracts. Unfortunately, there is not a universal contract for mining facilities even within the same area and from the same utility. The devil is in the details, and discussions with utilities are needed to make sure both parties see the value-add mining can provide the grid. The contracts also need to address how the miners will manage it over time via trading/hedging; otherwise, it will limit your growth in this industry. Trusting the utility to hedge/manage future fuel risk is doomed to fail, since most utilities pass through fuel costs to their customer base and do not have a history of needing to manage that risk.

When you reach a certain scale in load, the fixed cost of opening a trading/hedging account becomes worthwhile. Outsourcing this function is possible, but it is best to outsource to companies who know the ins and outs of your business, not just the power markets, as they will leave a lot of the value you bring on the table. Outsourcing key functions also removes a lot of the insight from the organization. It is best to work with a company that can help you navigate the key functions; for example, BitOoda can do much of the work for your organization to manage a financial contract book for hedging and opportunistic trading opportunities.

Obviously, hedging your costs without hedging your product could be tragic. Two tools BitOoda can help you use to mitigate BTC price volatility are to hedge BTC via BitOoda’s hash contract and to use options. A portfolio approach of various hedging instruments is the optimal strategy.

Of course, developing and executing the strategy is just the beginning. Evaluating your execution and seeing what works for your organization is ongoing. In the energy markets, it is prudent to expect the unexpected. Continuous monitoring and evaluation of results will separate the leaders from the followers. Building a balanced scorecard of your operations will enable this and allow management to be proactive vs. reactive.

Data is the key in the energy industry. Extracting data and turning it into knowledge (e.g., via dashboards and analytics) can be a crucial element in evaluating a strategy. BitOoda has the expertise to help you use data to get a comprehensive picture of your operations and the industry, including hardware data, power market data, BTC data, and your operational data.

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

Henry Hub WoW

Henry Hub is seeing some near-term strength as much of the country experiences hot weather.

PJM WoW

For the PJM region, we use PJM-W hub as the benchmark. PJM-W is the most traded power hub in the US.
PJM power saw minor changes outside this winter; winter prices are slightly down.

ERCOT WoW

For the ERCOT region, we use ERCOT-North hub as the benchmark. ERCOT-North is the most traded power hub for ERCOT.
August futures are coming down as reality is showing that wind generation along with solar can create low real-time prices.

CAISO WoW

For the CAISO region, we use SP-15 hub as the benchmark. SP-15 is located in Southern California.
The CAISO data from CME has been fixed – we saw only minor changes WoW.

NYISO WoW: NY-G

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.

NYISO WoW: NY-A

This slide adds NY-A for the NYISO region.
NY-A prices saw minor changes WoW.

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

Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or on or through http://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services. BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information.

The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance.

All derivatives brokerage is conducted by Ooda Commodities, LLC a member of NFA and subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets.

BitOoda Technologies, LLC is a member of FINRA.

“BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc.

‍

We at BitOoda have developed a number of strategies for miners centered around power. Our team is helping this industry move toward more comprehensive strategy development focused on miners’ core competencies, and helping miners execute, maintain, and improve those strategies over time.

Power is the life blood of the bitcoin industry. It is no different than other energy-intensive industries, but other mature industries have spent decades perfecting their ability to manage the power risk. BTC miners have the opportunity to learn from that experience, and have additional advantages given the unique capability of miners to ramp/turn off/on quickly compared to other industries. With hash rates near all-time highs, the halving coming up, and the amount of capital being deployed in this sector, it is critical to develop a comprehensive, cohesive strategy for your mining operation with power as a core element.

When it comes to site selection, power pays a crucial role from power access to purchase price. There are sites that may be the best for power prices, but the infrastructure build is too high in terms of time and cost. Alternatively, we have seen sites that are perfectly ideal for an interconnection, but the cost structure for power is just too high – particularly for some contracts with an open fuel clause and limited credits for flexibility.

When evaluating build-out options, power still becomes a critical element. Which technology will optimize the power capability for the location? How should you think about operating the facility – air cooled or immersion? Both of those questions can be answered by having a comprehensive strategy that defines what type of miner you want to be and what approach best fits your culture.

We have previously discussed the importance of power contracts. Unfortunately, there is not a universal contract for mining facilities even within the same area and from the same utility. The devil is in the details, and discussions with utilities are needed to make sure both parties see the value-add mining can provide the grid. The contracts also need to address how the miners will manage it over time via trading/hedging; otherwise, it will limit your growth in this industry. Trusting the utility to hedge/manage future fuel risk is doomed to fail, since most utilities pass through fuel costs to their customer base and do not have a history of needing to manage that risk.

When you reach a certain scale in load, the fixed cost of opening a trading/hedging account becomes worthwhile. Outsourcing this function is possible, but it is best to outsource to companies who know the ins and outs of your business, not just the power markets, as they will leave a lot of the value you bring on the table. Outsourcing key functions also removes a lot of the insight from the organization. It is best to work with a company that can help you navigate the key functions; for example, BitOoda can do much of the work for your organization to manage a financial contract book for hedging and opportunistic trading opportunities.

Obviously, hedging your costs without hedging your product could be tragic. Two tools BitOoda can help you use to mitigate BTC price volatility are to hedge BTC via BitOoda’s hash contract and to use options. A portfolio approach of various hedging instruments is the optimal strategy.

Of course, developing and executing the strategy is just the beginning. Evaluating your execution and seeing what works for your organization is ongoing. In the energy markets, it is prudent to expect the unexpected. Continuous monitoring and evaluation of results will separate the leaders from the followers. Building a balanced scorecard of your operations will enable this and allow management to be proactive vs. reactive.

Data is the key in the energy industry. Extracting data and turning it into knowledge (e.g., via dashboards and analytics) can be a crucial element in evaluating a strategy. BitOoda has the expertise to help you use data to get a comprehensive picture of your operations and the industry, including hardware data, power market data, BTC data, and your operational data.

Miner WoW View

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

Henry Hub WoW

Henry Hub is seeing some near-term strength as much of the country experiences hot weather.

PJM WoW

For the PJM region, we use PJM-W hub as the benchmark. PJM-W is the most traded power hub in the US.
PJM power saw minor changes outside this winter; winter prices are slightly down.

ERCOT WoW

For the ERCOT region, we use ERCOT-North hub as the benchmark. ERCOT-North is the most traded power hub for ERCOT.
August futures are coming down as reality is showing that wind generation along with solar can create low real-time prices.

CAISO WoW

For the CAISO region, we use SP-15 hub as the benchmark. SP-15 is located in Southern California.
The CAISO data from CME has been fixed – we saw only minor changes WoW.

NYISO WoW: NY-G

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.

NYISO WoW: NY-A

This slide adds NY-A for the NYISO region.
NY-A prices saw minor changes WoW.

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

Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or on or through http://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services. BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information.

The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance.

All derivatives brokerage is conducted by Ooda Commodities, LLC a member of NFA and subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets.

BitOoda Technologies, LLC is a member of FINRA.

“BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc.

‍

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Premium

Free

Bitcoin Miner Strategies – Power as a Centerpiece

Power Markets for Bitcoin Miners, 7/31/23

Key Takeaway #1

Key Takeaway #2

Key Takeaway #3

Key Takeaway #4

Premium Content

Table of contents

Research By

Miner WoW View

Henry Hub WoW

PJM WoW

ERCOT WoW

CAISO WoW

NYISO WoW: NY-G

NYISO WoW: NY-A

Disclosures

Table of contents

Research By

Miner WoW View

Henry Hub WoW

PJM WoW

ERCOT WoW

CAISO WoW

NYISO WoW: NY-G

NYISO WoW: NY-A

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