Bitcoin Mining Is Cool Again; We Can Thank Africa, Prudence and Growing Hashrate for That

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Cryp­to min­ing com­pa­nies have strug­gled might­i­ly in 2022. But over the last week or so the tide may be turn­ing. One shred of evi­dence came from Bar­clays, which ini­ti­at­ed equi­ty research cov­er­age on Core Sci­en­tif­ic (CORZ) ear­li­er last week, issu­ing an “over­weight” rat­ing.

Now, an “over­weight” rat­ing isn’t a “Buy this now, oh my good­ness, what a steal! This stock is liable to rip your face off” rat­ing; instead it’s more of a “Hey, this thing will per­form well com­pared with its peers.” Basi­cal­ly, “If min­ing stocks don’t all go up, at least CORZ won’t go down as much as the others.”

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Not exact­ly a strong sug­ges­tion that min­ing is back, but it’s objec­tive­ly bet­ter than, “Every­thing is going to zero and our best days are behind us.” But beyond this one stock rat­ing and oth­er­wise pos­i­tive stock per­for­mance the last two weeks (see below), the tide against min­ing is turn­ing. Min­ing is cool again.

Banks’ equi­ty research teams spend time writ­ing about com­pa­nies because a) the banks think the com­pa­nies oper­ate in an impor­tant indus­try and b) the cov­ered com­pa­nies might need to raise cap­i­tal some day, and they just might choose that bank to raise cap­i­tal on their behalf if they get a nice writeup.

Bar­clays ini­ti­at­ing cov­er­age on Core Sci­en­tif­ic itself isn’t too far out of bounds. But what was a bit sur­pris­ing (at least to me) was the report men­tion­ing that “we remain pos­i­tive on the long-term via­bil­i­ty of bit­coin” and “We view CORZ pos­i­tive­ly in light of … our long-term bull­ish view on BTC …”

Bar­clays isn’t some nobody bank pan­der­ing for clout, so if the idea that bit­coin has long-term via­bil­i­ty pen­e­trates more and more banks, the financiers at these banks will be excit­ed about the oppor­tu­ni­ty of ser­vic­ing the min­ing busi­ness­es that secure the Bit­coin net­work. But for now, let’s put Wall Street aside and shift our focus to Africa.

Read more: ‘Wall Street’ Doesn’t Need Bit­coin; Bit­coin Doesn’t Need ‘Wall Street’

Crypto mining stocks and bitcoin price since Sept. 26, 2022 (TradingView)

Cryp­to min­ing stocks and bit­coin price since Sept. 26, 2022 (Trad­ingView)

Forget Wall Street, let’s talk about Africa

Chainal­y­sis, a blockchain foren­sics com­pa­ny, pub­lished a report two weeks ago sug­gest­ing that cryp­to is thriv­ing in sub-Saha­ran Africa. Of the regions Chainal­y­sis stud­ied, data showed that sub-Saha­ran Africa account­ed for the least amount of trans­ac­tion vol­ume of any region. But a deep­er look at the data shows the region is expe­ri­enc­ing a grass­roots cryp­to movement.

Africans con­duct the world’s high­est pro­por­tion of retail pay­ments of less than $1,000 (80%) and car­ry out far more peer-to-peer trans­ac­tions pro­por­tion­al­ly (6%) than all oth­er regions. The report was well-sum­ma­rized by my col­league Fred­er­ick Munawa.

Coin­Desk Man­ag­ing Edi­tor Christie Harkin added impor­tant col­or on Coin­Desk TV by com­par­ing El Salvador’s cryp­to adop­tion (where bit­coin is legal ten­der) with African adop­tion. She said:

“[With El Sal­vador] we’re look­ing at a sit­u­a­tion where the use [of] bit­coin was imple­ment­ed in a top-down way … to con­trast that, the strong cryp­to usage and adop­tion rates in African coun­tries is from [the] bot­tom up. In fact, [adop­tion] is going against what their gov­ern­ments would pre­fer them to do, in many cases.”

I think that’s an impor­tant point. While the Sal­vado­ran legal ten­der law was sparked by a cir­cu­lar bit­coin econ­o­my that cropped up at Bit­coin Beach in El Zonte (a coastal town in El Sal­vador), it’s still a law that requires the adop­tion of bitcoin.

Back to mining.

Bitcoin mining and the turning tide

Last Tues­day, there was a video mak­ing the rounds on Twit­ter of a micro-hydro plant in rur­al Kenya imple­ment­ed by a com­pa­ny called Grid­less.

This is great. A vil­lage in Kenya that doesn’t have reli­able elec­tric­i­ty now has it in a way that isn’t com­plete­ly obtru­sive to the sur­round­ing ecol­o­gy. The kick­er? The hydro plant is also min­ing bit­coin with the excess elec­tric­i­ty to off­set costs. The plant was inten­tion­al­ly over­built and, accord­ing to tweets from Lux­or Tech­nolo­gies CEO Nick Hansen, the mined bit­coin could effec­tive­ly reduce pow­er prices by up to 90%.

This is real­ly one of the coolest things I’ve seen in a long time. Par­tial­ly because elec­tric­i­ty is awe­some, but also because it gives cre­dence to a pop­u­lar Bit­coin trope: Bit­coin min­ing pro­vides an ide­al way to mon­e­tize oth­er­wise-strand­ed cheap, renew­able ener­gy. As I wrote in April for Coin­Desk Research: “[Bit­coin min­ing] could be eco­nom­i­cal­ly impact­ful to com­mu­ni­ties near these strand­ed ener­gy sources as they are able to mon­e­tize their prox­im­i­ty to cheap ener­gy sources.”

And here it is. This is just one exam­ple, but a rur­al com­mu­ni­ty can now enjoy cheap­er elec­tric­i­ty because of bit­coin min­ing. Sure­ly there are more out there and there are more com­ing. Anoth­er rea­son why this is cool is because it is emblem­at­ic of how frag­ment­ed, and there­fore decen­tral­ized, bit­coin min­ing can be. Yes, there are sleek, put-togeth­er and pub­licly trad­ed cor­po­ra­tions min­ing bit­coin in big ware­hous­es, but there are also rur­al com­mu­ni­ties that can just as eas­i­ly mine bitcoin.

Bankruptcies and increasing difficulty are happening, but there’s reason for optimism

Of course, even though I offered pos­i­tive sto­ries above, there’s still the real­i­ty that the min­ing busi­ness has tak­en a hit this year. As I wrote in May:

“All said, there is no par­tic­u­lar rea­son to wor­ry about the min­ing indus­try as a whole. Bit­coin min­ing will be fine, but the cast of char­ac­ters might change since the cap­i­tal mar­kets are avail­able up until the moment they aren’t. Bit­coin will be bet­ter for it, but there might be some pain com­ing at the com­pa­ny level.”

And we saw that pain. We’ve already talked about stock per­for­mance, but there’s more.

Last week Coin­Desk report­ed that bit­coin min­ing com­pa­ny Marathon (MARA) had invest­ed $31.3 mil­lion in Com­pute North, which filed for bank­rupt­cy last month. Coin­Desk also report­ed that pub­licly trad­ed cryp­to min­ing com­pa­ny Argo Blockchain (ARGO) raised $27 mil­lion in equi­ty cap­i­tal due to “liq­uid­i­ty pres­sures” in tan­dem with sell­ing 3,400 of its min­ing machines. On top of the cor­po­rate pain, bit­coin min­ing machines have been offered for sale on third-par­ty sell­ing plat­forms (like Kaboom­racks) at steep dis­counts. Clear­ly, things are tough right now and the con­sen­sus seems to be it’ll get worse before it gets bet­ter.

But I think min­ing is on the come up.

On Oct. 2, Lux­or Tech­nolo­gies’ head of research, Col­in Harp­er, wrote: “Bitcoin’s hashrate is absolute­ly pop­ping off right now, ris­ing some 8% over the week to a new all-time high this morn­ing.” On Oct. 7, hashrate (the total com­pu­ta­tion­al pow­er being used to mine bit­coin) was around 260 exahash/second. That marks a ~24% increase over the last three months. Due to the increase in hashrate, the Bit­coin net­work is set to make it hard­er to mine bit­coin. This is the so-called “Min­ing Dif­fi­cul­ty Adjust­ment” per­formed auto­mat­i­cal­ly by Bitcoin’s code rough­ly every two weeks, and because it’s a rel­a­tive­ly aggres­sive upward adjust­ment, there is a pes­simism around the short-term prospects for mining.

Read more: Bit­coin Min­ing Dif­fi­cul­ty: Every­thing You Need to Know

Bitcoin network hashrate (Luxor)

Bit­coin net­work hashrate (Lux­or)

But here’s why I’m not pessimistic.

Things got tough for min­ing com­pa­nies, and the com­pa­nies that have sur­vived are the com­pa­nies that were oper­at­ing respon­si­bly and pru­dent­ly. Some com­pa­nies were tak­ing advan­tage of the cheap cap­i­tal avail­able to them because of low inter­est rates to run their busi­ness, and that’s sim­ply not pos­si­ble any­more in a ris­ing inter­est rate envi­ron­ment. The min­ing com­pa­nies that have endured this shake­out are sim­ply the best of the bunch.

On top of that, cre­ative ideas, like rur­al micro-hydro plants that mine bit­coin in Kenya, are crop­ping up and the injec­tion of cre­ativ­i­ty into the space gives me optimism.

To cap it off, the network’s hashrate is grow­ing quick­ly in spite of the fact that bitcoin’s price isn’t real­ly explod­ing – typ­i­cal­ly a high­er bit­coin price would encour­age more peo­ple to mine since the rewards are poten­tial­ly greater. So instead of min­ers sim­ply pil­ing into the net­work in a quest for mas­sive gains in bit­coin, they are join­ing because it is a pru­dent busi­ness deci­sion now that the net­work has proven stay­ing power.

Not to men­tion, Octo­ber is a his­tor­i­cal­ly pos­i­tive per­form­ing month for bit­coin, so bit­coin trad­ing in a tight band between $19,000-$20,000 might not last very long.

So, with all of these things in, I’ll say it again: Min­ing is cool again.



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