Texas’s Summer is Bitcoin Mining’s Winter

Welcome to Bloomberg Crypto, our twice-weekly look at Bitcoin, blockchain and more. If someone forwarded this to you, sign up here. In today’s edition, David Pan looks at the changing landscape in Texas’s Bitcoin mining industry:

Heat Changes Everything

When China banished Bitcoin miners in May 2021, Texas must have seemed like the promised land. The state offered one of the most liberal regulatory regimes for crypto mining and a competitive rate for electricity that gave such businesses a profit margin on par with the luxury industry. These conditions have persisted for the displaced miners and others that joined them in flocking to Texas — until this summer.

A heatwave has pushed the state’s grid to its brink and sent power prices soaring. Now, nearly all industrial-scale Bitcoin miners in Texas have turned off their rigs to ease the strain under a non-binding agreement they made with state grid managers in the biggest pullback since the China ban. It was a condition that miners were willing to accept, even if not required, when they signed on in the state — but it’s causing a pinch now.

As Texas broils, hundreds of thousands of mining machines are deteriorating in the heat without earning money just as a drop in Bitcoin’s price has already hurt profits. To be fair, the miners didn’t set up their multimillion-dollar operations without gauging the risks. But the extreme conditions and threat of further disruptions as summer drags on suggest the equation may be changing in a way that may make Texas less of a mining magnet.

When miners calculated how much a brutal summer in Texas could damage their businesses, they likely didn’t anticipate the prospect of a prolonged surge in energy prices like the one caused by Russia’s Ukraine invasion, or that low wind speeds might curb alternative-power just when it was needed most. Those circumstances have exacerbated the energy shortage, leaving little wiggle room for the miners to source large amounts of electricity from the grid. 

More potential regulatory hurdles loom as miners take up a significant portion of the state’s power consumption. Earlier this year, the Electric Reliability Council of Texas came up with a review process that will evaluate crypto mines’ impact on the grid. The mining space in Texas shows signs of saturation as certain local power-transmission companies started requiring miners to build out part of the infrastructure such as substations on their own.  

Even so, energy-gobbling mining machines keep getting plugged into the Texas grid. The state operator expects demand from Bitcoin miners to increase by up to six gigawatts, enough to power every home in Houston. 

Something will clearly have to give, and as mining CEOs are finding out, even the most crypto-friendly regulations are no match for the slow-motion disaster that is global warming. As they ponder their options after piling into Texas, they might do well to recall one of the founding tenets of their industry: Sometimes decentralization works best. 

Charting it out

Counting it out

Hearing them out

What we’re reading (and writing)

• Ex-Coinbase Manager Arrested in Crypto Insider Trading Case
• Sam Bankman-Fried Expands Crypto Empire During $2 Trillion Rout  
• Crypto Companies Lay Off Risk And Compliance Staff (Wall Street Journal)
• Tesla Sold Most of Its Bitcoin to Shore Up Carmaker’s Liquidity
• Stablecoins Would Get Federal Rules Under Emerging House Deal (Washington Post) 
• Tesla, MicroStrategy, Block Face Hit From Bitcoin: Tech Watch

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