Falling oil prices could hurt Bitcoin miners who use natural gas to mine

As oil prices fall to historic lows, the few North American bitcoin mining companies with fossil fuel-based operations are looking toward the oil market with fear and excitement.

For environmental reasons, bitcoin mining companies need to reduce carbon emissions. So instead of wasting waste natural gas emitted by oil companies, bitcoin mining companies such as Canada's Upstream Data, Colorado's Crusoe Energy, and Texas' DJ Bitwreck capture this waste natural gas to fuel hundreds of bitcoin mining machines.

The problem is that the collapse of the oil market will cause the oil companies that provide exhaust gas to shut down, which will prevent some Bitcoin miners from using their exhaust gas.

When the price of Bitcoin dropped sharply (in March), Bitcoin mining quickly became unprofitable. Some mines chose to close rather than continue to suffer losses. If the price of Bitcoin remained low, only large industrial-scale Bitcoin mines could withstand months of lost profits. Bitcoin mining companies needed to find a cheap source of power - that is, to absorb oil waste gas as a source of electricity.

In Texas, a bitcoin miner who goes by the alias DJ Bitwreck said he is developing new bitcoin mining hardware for capturing gas. His team, which has a total of four co-founders, will take another five months to build the equipment. "We are using cheap gas resources that can generate about 40 kilowatts of electricity per year, and our testing is still in the proof-of-concept stage," said DJ Bitwreck, who is trying to add at least 1 megawatt of electricity from waste gas. "We are looking for locations that allow us to enter and place a generator and a container-sized mining container at a natural gas power plant. The bottom line is that waste gas is a headache for producers, but their troubles are our gold mines." Marty Bent, co-founder of Great American Mining, which has been operating a bitcoin mining operation like this in North Dakota since December 2019, said that if oil companies stop operating, "there will be no natural gas byproducts." But on the other hand, Bent expects that there are "hundreds" of megawatts of electricity that can be converted into power for bitcoin mining alone on the oil companies he relies on.

From DJ Bitwreck’s perspective, barring the extreme situation where oil prices fall to negative numbers, Bitcoin miners may not see a shift in funding strategy until after the Bitcoin halving in May, which reduces the potential profits that Bitcoin miners may receive.

Will June get better?

All of the aforementioned Bitcoin mining startups remain modestly profitable and profitable despite Bitcoin’s price not rising in 2020. However, it remains to be seen what will happen to all but a few of the largest Bitcoin mining farms if both oil and Bitcoin prices remain low throughout the year.

“We expect bitcoin to be very choppy, but we’re actually quite excited about it,” said DJ Bitwreck. “That’s why we’re not buying equipment right now, we’re ideally looking to cash in on the choppy waters that topple the mining market.”

Original article by Leigh Cuen from Coindesk