A new report from the Hashrate Index provides insight into how the global energy crisis impacted the Bitcoin mining industry in 2022. With rising electricity prices and declining Bitcoin prices, some of the largest companies in the industry, such as Core Scientific, faced bankruptcy.
According to the report, a severe imbalance in the supply and demand of natural gas is a leading cause of the energy crisis and subsequent electricity price inflation. Natural gas is a crucial source of power for electricity markets, and its flexible nature allows it to adjust to spikes in demand.
However, with Europe’s reliance on Russia for natural gas, the invasion of Ukraine in 2022 exposed the continent’s vulnerable energy security. As a result, Europe’s use of North American liquified natural gas caused energy price inflation to spread to the US and Canada.
Despite North America’s better energy security, most of the popular US states for Bitcoin mining saw double-digit increases in industrial electricity prices from 2021 to 2022.
Georgia experienced the largest surge with a 43% jump, which likely contributed to Core Scientific’s downfall. Meanwhile, Texas, home to large mining operations, also saw its electricity prices rise from $61 to $72 per MWh.
The report also revealed a correlation between a state’s electricity generation mix and its change in electricity prices in 2022. Hydro-rich states like Washington, Oregon, Idaho, and Montana were shielded from the worst electricity price increases, while those primarily powered by natural gas saw higher price rises.
Additionally, the report emphasizes the importance of securing a low, long-term electricity price for the mining business, either through long-term physical or financial hedging or accessing stranded hydropower.
Hydro Power Provides Shield for Bitcoin Miners
States with abundant hydropower and independence from natural gas are less impacted by the global energy crisis, according to the report. In fact, no state powered by more than 40% hydro saw its electricity prices increase by more than 8% in 2022.
These hydro-rich states offer relatively cheap electricity for Bitcoin miners as long as the hydropower remains stranded or localized.
However, if there is sufficient transmission capacity to transport the excess hydropower to an area with high natural gas prices, customers in that area will bid up the price of the hydropower.
The report highlights the inverse correlation between states’ share of hydropower and their industrial electricity price changes in 2022, indicating that hydro-rich states saw lower electricity price increases.
On the other hand, the report shows a strong relationship between states’ share of natural gas and their electricity price changes, with natural gas-powered states experiencing higher price rises.
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