Bitcoin miners, who have been battered by the recent bear market and high energy prices for months, are finally getting some relief thanks to natural gas prices that have fallen about 75% since August. Crypto prices, meanwhile have rebounded.
Miners use copious amounts of energy, and their profitability greatly depends on their ability to consistently source cheap power. Many industrial-scale miners rely on power grids that generate electricity using natural gas, and don’t have fixed-rate energy purchase agreements, exposing them to the whims of energy markets.
“2022 proved how vulnerable those miners are to global fuel price inflation,” said Jaran Mellerud, analyst at mining services firm Luxor Technologies.
Many of these miners suffered heavy losses because natural gas prices soared on sanctions imposed on Russia after last year’s invasion of Ukraine, plus the price of bitcoin plummeting in 2022, hitting a two-year low in November.
Firms responsible for more than 1 gigawatt of hosting capacity entered bankruptcy protection as a result of the 41-year high in power prices last year, said cryptocurrency-focused financial services firm Galaxy Digital in a report last month. Hosting firms that offered fixed-rate contracts to their customers were particularly exposed to the variability of energy markets, and some of them ended up paying more for their service than they were bringing in.
However, all that might be changing.
Natural gas – which accounts for about 32% of U.S. energy consumption, according to the Energy Information Administration – has fallen about 75% to $2.44 per million British thermal units on the New York Mercantile Exchange. By comparison, in August 2022 the price was around $9 per million British thermal units, according to CNBC data.
Demand has been lower than anticipated due to an unusually warm winter in Europe, among other things contributing to the lower price. Meanwhile, bitcoin rallied about 40% in price in January.
This environment has had a “positive impact” on bitcoin miner Greenidge Generation’s (GREE) operations, particularly its natural gas plant in upstate New York, said the company’s chief strategy officer, Scott MacKenzie.
The price of natural gas is expected to stay low in the short to medium term, providing some wiggle room for the miners to lower their operating costs, according to some industry participants.
“Absent another big surprise (such as the Ukraine war), we do not expect natural gas prices to return to their recent peak of over $9,” said Alex Stoewer, chief operating officer at Digital Power Optimization, a company that helps power producers balance electricity loads using different solutions. “December 2025 Henry Hub futures are currently at $4.50, with summer prices in the mid-$3s.”
The impact of lower natural gas prices and higher bitcoin prices is starting to show up in the global hashrate, a measure of computing power on the Bitcoin network, according to investment bank DA Davidson.
“The improved [mining] economics have encouraged less-efficient operators to re-engage, sending network competition to new highs,” analyst Chris Brendler wrote in a Jan. 30 research note. The hashrate will stay high in Brendler’s estimation, particularly given the drop in natural gas prices.
At the height of last year’s war-induced natural gas rally, demand for power increased sharply as the U.S. saw its third-hottest summer on record.
This meant that not only prices for grid-hooked miners were sky-high, but energy producers and utilities could sell their power to other industries at massive profits, thus barely striking any new deals with the miners.
As natural gas prices come down in 2023 and mining economics improve, the case for mining bitcoin is becoming lucrative – for both miners and energy firms.
“New [mining] deployments are benefiting significantly from this by raising capital to build bitcoin mines and forming new partnerships with gas owners,” said Luxor Technologies Chief Operating Officer Ethan Vera.
Galaxy said that partnerships between the two industries are mutually beneficial as “miners can secure lower energy prices and energy providers can have a guaranteed off-taker of energy to monetize excess energy.”
The impact of natural gas fluctuations is a stark reminder that ensuring energy costs can stay low in the long term is more important than flocking to an ultra-low-cost short term opportunity.
“The past year shows that miners are better off fixing the long cost of power, as opposed to flocking to areas where energy prices are cheap, but variable,” said Sergii Gerasymovych, founder and CEO of mining firm EZ Blockchain.