Texas’s Crypto Mining Boom Is Starting to Look More Like a Bust

image

(Bloomberg) — The digital gold rush in Texas is losing its luster as Bitcoin miners grapple with financial woes, leaving behind what some fear will be a wasteland of unfinished sites and abandoned equipment.

In an effort to become a haven for crypto mining, Texas has aggressively lured miners with cheap power and favorable regulations, prompting many to take out billions in loans to buy pricey machines and build out infrastructure.

However, soaring energy costs, a sharp decline in Bitcoin prices and more competition have compressed profit margins and made it difficult for miners to repay debt. Some are on the verge of bankruptcy.

“There are just tons of assets everywhere, it’s like a mess.” said Mason Jappa, chief executive at Austin, Texas-based crypto-mining service firm Blockware Solutions. “I got messages about transformers, switch gears, and mobile data centers and containers for mining, they are just sitting there.”

There are a lot of losers if the Bitcoin mining industry goes bust. For one, local authorities provided incentives such as tax abatements that reached into the tens of millions of dollars. The power generation planned that the region sorely needs to avoid another energy crisis may not materialize. Some developers made hefty investments to build out Bitcoin mining facilities. The average cost to have one-megawatt capacity of mining infrastructure is currently around $300,000 in the state, the high end of the range, according to Jappa.

Iris Energy said last month it would assess how much and when they will build out facilities beyond the initial 20-megawatt construction on their Childress site. The firm planned to have 600-megawatt of capacity at the site. Iris pulled mining rigs from two sites after defaulting on $108 million in loans. It continues to own the land and other physical assets at the two sites, the company said Monday.

Argo Blockchain initially planned to complete its 800-megawatt mining farm at Dickens County earlier this year but the miner has experienced a liquidity crunch. It warned in October that if new financing isn’t secured, it would need to “curtail or cease operations.” Core Scientific warned of potential bankruptcy after announcing its plan to build facilities with 200-megawatt of capacity near Dallas.

The companies represent the largest participants in Texas’ crypto-mining industry out of a dozen crypto-mining firms with plans to build facilities. They are projected to produce as much as 7-gigawatt of power demand from Texas’ grid, with 3 gigawatt coming in 2023, based on announcements and US Securities and Exchange Commission filings.

It will take several years for Lancium, which has two sites with over 1-gigawatt of capacity in Taylor and Pecos Counties, to fill the facilities, a spokesperson said. In addition to miners, the firm expects to host different applications such as high-performance computing.

Riot Blockchain, Argo, Compute North and Core Scientific, Genesis Digital Assets and Bitdeer did not respond to requests for comment.

“A lot of the supply chain issues that were strong during the Covid times are not necessarily a bottleneck factor anymore.” said Matthew Kimmell, digital asset analyst at CoinShares. “What may be a limitation is just their cash on hand.”

Energy costs for miners have been high throughout the year due to Russia’s invasion of Ukraine and heat waves across Texas in the summer. The Federal Reserve’s tightening of monetary policy and implosions of major crypto firms sent Bitcoin prices down more than 60% this year.

After China banned crypto miners last year, Texas sought to fill the gap as a way to add fuel to the state’s fast-growing economy. But because mining hinges on power consumption, the wave of new demand threatens to stress a grid still trying to recover from failures during an extreme winter storm in February 2021 that left millions in the dark for days and more than 200 people dead.

Governor Greg Abbott has touted mining as a way to aid the grid because machines can be quickly ramped down during periods of stress and ramped up to soak up excess wind and solar generation that would otherwise be wasted. The ability to reliably swing output from such large amounts of demand would be a boon, however the rules that would require miners to act a certain way under certain market conditions are still being debated. Critics are concerned that existing practices will enable crypto miners to dodge costs tied to upgrade the grid to accommodate all their demand to consumers.

Abbott’s office did not respond to requests for comment.

Texas has about 1.5 gigawatts of crypto mining capacity, mainly Bitcoin, operating with about 37 gigawatts vying to connect to the state grid as of Oct. 20, according to the most recent data available from the Electric Reliability Council of Texas. That queue has more than doubled in six months.

While the queue indicates growing power demand from miners earlier this year, the amount may be inflated. Power brokers and mining companies could have filed multiple applications for the same mining site as those applications do not require deposits.

Some applications may not even come through because those with little experience in Bitcoin mining are likely to abandon their plans, said Ethan Vera, chief operations officer at crypto-mining services firm Luxor Technologies.

©2022 Bloomberg L.P.

Trending Ideas

Featured Stocks On The Move

Daily Rundown
  • Restaurants, Streaming, Software, Retail

    Brinker International, Inc. (EAT) Brinker International, Inc. operates popular restaurant chains, including Chili’s Grill & Bar and Maggiano’s Little Italy. The company focuses on providing value-driven dining experiences and maintaining... Read More

  • Banking, Footwear, SPAC, Leisure Travel

    Barclays PLC (BCS) Barclays PLC is a multinational investment bank and financial services company headquartered in the UK. The firm offers a wide range of services, including retail banking, wealth... Read More

  • Fintech, Aviation, Consumer Goods, Fintech

    Robinhood Markets, Inc. (HOOD) Robinhood Markets, Inc. is a financial technology company revolutionizing investment with its commission-free trading platform. It provides tools for trading stocks, ETFs, and cryptocurrencies, making financial... Read More

  • Mining, Networking, Banking, Energy

    Kinross Gold Corporation (KGC) Kinross Gold Corporation is a senior gold mining company with operations and projects across the Americas, West Africa, and Russia. The company focuses on delivering value... Read More

  • Fintech, Telecommunications, Mining, Industrial Supplies

    360 DigiTech, Inc. (QFIN) 360 DigiTech, Inc. is a leading fintech platform in China, offering consumer credit solutions and financial advisory services. The company leverages big data and artificial intelligence... Read More

  • Banking, Healthcare, Technology, Retail

    Triumph Bancorp, Inc. (TCBX) Triumph Bancorp, Inc. provides banking and financial solutions, specializing in transportation-focused lending and factoring services. The company leverages technology to streamline operations and enhance customer experience... Read More

  • Investment, Precious Metals, Financing, Asset Management

    Invesco Ltd. (IVZ) Invesco Ltd. is a global investment management company offering a variety of financial products, including ETFs, mutual funds, and retirement solutions. The firm emphasizes innovation and expertise... Read More

  • Manufacturing, Technology, Fintech, Social Networking

    Modine Manufacturing Company (MOD) Modine Manufacturing Company specializes in thermal management systems for automotive, HVAC, and industrial applications. The company focuses on energy-efficient solutions to meet sustainability and performance demands.... Read More



Top 3 Stocks in Leading Sectors
  • 3 Electric Power Stocks To Buy Now

    Empresa Distribuidora y Comercializadora Norte S.A. (EDN) Empresa Distribuidora y Comercializadora Norte S.A. (EDN) distributes electricity to Argentina’s Buenos Aires region. The company focuses on reliable energy supply, infrastructure upgrades,... Read More

  • 3 Investment Brokerage Stocks To Buy Now

    Robinhood Markets, Inc. (HOOD) Robinhood Markets, Inc. operates a financial services platform offering commission-free trading in stocks, ETFs, and cryptocurrencies. Known for its user-friendly mobile app, the company focuses on... Read More

  • 3 Consumer Service Stocks To Buy Now

    FAT Brands Inc. (FAT) FAT Brands Inc. is a global franchising company that develops and manages a portfolio of fast-casual and casual dining restaurant brands. Known for its diverse offerings,... Read More

  • 3 Safety Stocks To Buy Now

    Digimarc Corporation (DMRC) Digimarc Corporation develops innovative digital watermarking and content identification technologies. Its solutions enhance product packaging, digital media, and supply chain transparency, providing companies with tools for brand... Read More

  • 3 Gold Stocks To Buy Now

    Royal Gold, Inc. (RGLD) Royal Gold, Inc. acquires royalties and streaming interests in precious metal mines, focusing on gold, silver, and copper. The company benefits from rising commodity prices without... Read More

  • 3 Aerospace/Defense Stocks To Buy Now

    OSI Systems, Inc. (OSIS) OSI Systems, Inc. specializes in designing and manufacturing electronic systems for security and healthcare applications. The company provides advanced screening, imaging, and critical care monitoring solutions... Read More

  • 3 Airline Stocks To Buy Now

    JetBlue Airways Corporation (JBLU) JetBlue Airways Corporation is a low-cost airline that provides flights to destinations across the United States, the Caribbean, and Latin America. Known for its customer-focused service,... Read More

  • 3 Tobacco Stocks To Buy Now

    Turning Point Brands, Inc. (TPB) Turning Point Brands, Inc. markets and distributes a range of branded consumer products, including Zig-Zag rolling papers and Stoker’s moist snuff. The company operates within... Read More