Saturday, May 31, 2025

Latest

Another Giant E&P Company Enters Bitcoin Mining Industry; Negative Margin Implications For Legacy Miners

Very uncharacteristically, Canadian Bitcoin mining stocks, such as Bitfarms Ltd. (TSXV: BITF), Hut 8 Mining Corp. (TSX: HUT) and HIVE Blockchain Technologies Ltd. (TSXV: HIVE), have retreated over the past two weeks despite a continued sharp rise in the price of Bitcoin. Typically, the miners appreciate more sharply than the underlying cryptocurrency during pronounced Bitcoin rallies (and fall at a similarly faster pace during corrections). 

The last two weeks trading pattern could just represent trading noise or year-end profit taking. However, it could also signify investors acknowledging that legacy Bitcoin miners face significant operating risks that Bitcoin itself does not – particularly as Bitcoin mining participation continues to grow.

Note that in the above graph the stock prices of Bitfarms, Hut 8 Mining and HIVE Blockchain are shown in Canadian dollars on left axis; and Bitcoin is depicted in US dollars on right axis.

It is possible that investors in Bitcoin are beginning to factor in the risk that more oil and gas exploration companies are entering the Bitcoin mining industry. 

For example, on December 30, 2020, Gazpromneft, the oil subsidiary of Russian government-supported Gazprom (market cap of US$68 billion), announced that it is opening its energy resources to Bitcoin miners. By doing so, Gazpromneft introduces very low-cost suppliers into the industry, potentially impacting the margins of legacy Bitcoin miners.

In more detail, carbon dioxide that is freed during the oil drilling process and would otherwise be flared into the atmosphere is converted into electricity. A Bitcoin mining operation located at a drilling site would then be able to utilize virtually zero cost electricity. More than in almost any other industry, a single category of costs — electricity — dominates the cost structure of Bitcoin miners. Indeed, Coin Savage in December 2019 estimated that electricity consumption comprises about 60% of the operating costs of a Bitcoin miner.

As more miners join the Bitcoin network, the Bitcoin system automatically increases the difficulty of the math problems that must be solved for a Bitcoin miner to capture Bitcoin rewards in auctions held approximately every ten minutes. The only way for a Bitcoin miner to counteract this higher difficulty level is to add more computing power, which entails increased expenditures on computer equipment and, in turn, increased required electricity consumption.

Gazpromneft’s December 2020 announcement follows a similar action taken in August 2020 by international energy giant Equinor ASA (market capitalization of US$55 billion). Equinor partnered with Crusoe Energy Systems, a private company, to convert natural gas that is flared into the atmosphere at its oil field in North Dakota into essentially zero-cost electricity, and to use that electricity to start a Bitcoin mining operation. 

In addition, at least two private companies – Greenidge Generation LLC and Upstream Data – have already put in place systems that use excess natural gas to mine Bitcoins. The potential availability for such platforms is enormous: in the U.S. alone, about 600 billion cubic feet of natural gas, with a notional value of around US$1 billion, are flared on an annual basis. As more energy companies either directly enter Bitcoin mining or provide a very low-cost venue for others, the margin impact on legacy Bitcoin miners could become significant.

Bitfarms is trading at $2.50 on the TSX Venture Exchange; Hut 8 Mining is trading at $3.49 on the TSX Exchange; and HIVE Blockchain Technologies is trading at $2.39 on the TSX Venture Exchange. 


Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Leave a Reply

Video Articles

How To Profit From $3300 Gold? An Inside Look At A Massive 300,000 Oz Project | Martino De Ciccio

We’re At The Start of a Great Silver Boom | Ross McElroy & Andy Bowering – Apollo Silver Corp

Equinox Gold Q1 Earnings: When Everything Goes Wrong

Recommended

ESGold Begins Concentration Tests Ahead Of First Production

Sterling Metals Hits 0.21% Copper Over 482.8 Metres In First Drilling At Soo Copper project

Related News

MicroStrategy Obtains $205 Million Loan Collateralized With $820 Million In Bitcoin

MicroStrategy Inc (NASDAQ: MSTR) evidently is looking for ways to acquire additional bitcoin. The firm...

Tuesday, March 29, 2022, 09:05:47 AM

Hive Blockchain: Not Just A Bitcoin Company – The Daily Dive

Joining us for the mid-week episode of the Daily Dive is Darcy Daubaras, the CFO...

Wednesday, July 14, 2021, 01:30:00 PM

Bitcoin Sent Plummeting Amid Rising Fears Over Global Equity Market Meltdown

The price of bitcoin was sent nosediving on Monday, as investors around the world offloaded...

Tuesday, September 21, 2021, 02:34:00 PM

Bitcoin Investors Should Monitor Key Policy Actions by the Incoming Biden Administration in U.S.

As Bitcoin’s ascent has grown even more steep over the last few weeks, it is...

Saturday, January 2, 2021, 09:00:00 AM

Market Moving: The Elements of the Venture Exchange’s Ongoing Resurgence

The TSX Venture Exchange is the largest regulated venture-stage equities exchange in the world. Those...

Wednesday, January 29, 2020, 09:44:24 AM