Profitable bitcoin mining is essentially the result of a skilled and highly skilled team of professionals who can maintain the runtime, the founder of a bitcoin mining company has emphasized. So, even if the price is around $20,000, a bitcoin miner with these characteristics can still operate profitably.
‘Bitcoin fundamentals rarely change’
The value of bitcoin fell from under $30,000 in early June to less than $20,000 by the middle of the month, which is considered one of the factors contributing to the collapse and bankruptcy of large crypto entities like 3AC and more recently Voyager . However, these two high profile entities are by no means the only ones seriously affected.
In addition to dealing with low prices, many market participants, including bitcoin miners, have faced a high risk of bankruptcy. As the situation with 3AC has shown, many market participants were, or still are, over-leveraged. A more significant drop in prices could result in more bankruptcies.
However, for other market participants such as BTC miner Permian Chain, a further decline in the price of the top crypto is unlikely to have much impact on the company’s long-term plans. According to the founder and CEO of Canada-based cryptocurrency mining firm, Mohamed Al-Masri, the core value behind bitcoin inspired him. El-Masri also explained to Bitcoin.com News via email that the crypto asset’s short-term price volatility and the accompanying media headlines alone cannot cause the Permian Chain to change course.
Below are answers from the rest of the Permian Chain CEO to questions sent by Bitcoin.com News via email.
Bitcoin.com News (BCN): The steady fall in the prices of crypto assets has caused the downfall of some of the major players in the sector. There is no doubt that bitcoin miners are also facing the heat. Can you explain to our readers how the price of bitcoin under $20,000 affects miners?
Mohamed Al-Masri (MM): The over-leveraged situation facing some major bitcoin miners is largely the result of global macroeconomic factors, which pushed energy prices to the roof and put downward pressure on equity stocks and crypto markets. The major selloff on crypto exchanges began as a result of widespread vulnerabilities and, in part, the negligence of more leveraged market participants who were forced to buy some or all of their bitcoin and other digital assets to cover debt payments.
A sub-$20,000 price of bitcoin certainly will not provide the outstanding returns that bitcoin miners experience over $45,000. However, most industrial bitcoin miners are running new generation and highly efficient ASIC equipment, where they can still remain profitable, assuming they can keep the cost of electricity within $0.05/kWh and $0.10/kWh. Small miners who do not have economies of scale and low-cost energy sources are certainly mining well below their break-even point. However, profitable bitcoin mining is largely the result of a skilled and highly skilled team of professionals who can maintain runtime even during a $20,000 bitcoin market.
Let us not forget one of the key features of bitcoin, its difficulty adjustment algorithm, which rewards miners who stay online during short market cycles because other miners cannot lose their equipment due to profitability, defaults, bankruptcy or whatever. Let’s close… the key to getting and benefiting is to stay online with as high a hash rate as possible.
BCN: What has been the effect of depressed crypto prices on the operation of the Permian Chain?
MM: The Permian chain will continue to mine bitcoin regardless of market prices. Headlines and market conditions change, but fundamentals rarely change. The core value behind bitcoin is what we are in this business for.
As far as our mining sites are concerned, we have established a well-organized relationship with our energy providers by implementing Energy as a Service and bitcoin mining platforms to streamline our efforts. For example, the Permian chain works closely with our energy producer and site manager in Alberta, Brooks Equity, to streamline a vertically-integrated value chain; From onsite fieldwork to online software solutions, we are able to maintain mining and operations.
BCN: Will Permian Chain still be profitable to continue mining if the price drops even further?
MM: It all depends on what you consider profitable. If we are talking about the dollar value for assessing profitability, then probably not. However if we look at the profitability in terms of bitcoin then yes. In my personal opinion, the fundamental value does not correspond to the market cap of bitcoin. It takes time for the fundamentals to become clear to the public.
If you have a ten year outlook for your bitcoin investments, I believe bitcoin mining to be a strong value maker. It is also very important to realize that if the price of bitcoin continues to drop, it is very likely that a lot of miners globally will start shutting down. If enough miners stop their operations, this will put pressure on the difficulty adjustment. As the difficulty rate decreases, the mining process becomes less difficult. As a result, it increases a miner’s chances of earning bitcoins more often than not if the difficulty rate is higher.
The difficulty rate measures how hard an ASIC miner will have to work to verify a transaction on the blockchain (solving a block of transactions in exchange for bitcoin as a reward). With a lower difficulty rate, miners can find and solve blocks faster, allowing them to earn more bitcoins in the same time frame for the same energy cost, hence greater profits.
BCN: Permian Chain uses what you call low-cost energy, derived from flared and trapped energy resources, for its data-mining centers. Can you explain why the Permian Chain chose to use this energy source?
MM: Permian Chain is an energy-as-a-service platform for compute infrastructure, starting with bitcoin mining. We aggregate all sources of energy on the platform to help the world’s energy producers monetize and capitalize on their wasted and stranded resources through our tokenization processes and Smart Off-Take Agreements (SOTAs). We focus on taking bitcoin mining off-grid and it just so happened that we introduced natural gas as our first natural energy source, because that is where the challenges are most important to solve from an ESG perspective, Which makes our solution very clear example.
BCN: In which geographic location is it possible to profitably mine bitcoin using flared and trapped energy resources?
MM: It depends on many factors as each jurisdiction has different standards from regulations, cost of labor, cost of raw materials, overheads, etc… all of which affect your net electricity cost. I hear a lot about low cost electricity in certain areas, but I can easily assume that most of these so called “opportunities” don’t cover the other costs I mentioned. You need to take all those costs into account to really give you a clear understanding of your operating expenses. Having said that, I believe that anywhere between $0.05 and $0.10/kWh should be considered low cost and shows effective overall cost management. Given that we are off-grid as well.
BCN: Some environmental groups have said that changes to bitcoin’s coding are likely to eliminate its environmental impact. Do you agree with this argument?
MM: Change in coding? replace with what? I don’t believe bitcoin should or should change… it will only continue to increase in adoption rate and improve its efficiency through layer 2 technologies and better new generation tools. Companies such as Intel and Samsung continue to manufacture new generation chips that will improve mining efficiency.
As far as the environmental impact is concerned, as the Internet runs on data center facilities, which consume 2% of the world’s on-grid electricity, bitcoin will continue to require mining “data center” facilities. However, bitcoin is the largest computer in the world and consumes about 0.4% of the world’s electricity. Most are away from renewable and clean energy sources. The bitcoin mining trend is also leaning towards off-grid energy sources such as clean hydro, solar and responsibly produced natural gas in the near future.
BCN: Can you briefly explain how your tokenization platform works?
MM: Energy companies register themselves and their resources on our platform. We review submissions prior to approval. Once approved, resource projects can go through two tokenization routes; (1) through the offering of Security Tokens to accredited investors with the help of registered broker-dealers on our Platform; and (2) by issuing smart off-take agreements (SOTAs) allowing our network of mining partners who join our mining pool aggregators to stake their stablecoins on energy projects, including their ASICs Interested in keeping miners. This second process allows energy companies to get early support from miners and commercialize their energy resources by deploying onsite off-grid power for bitcoin mining.
BCN: Both Africa and the MENA region – where solar energy appears to be plentiful – still account for an insignificant portion of bitcoin mining. What could be the reasons for this or what do you think needs to be done to attract miners to these two areas?
MM: In countries and regions such as North America where energy is predominantly private, innovation and new business models are easier and faster to understand and implement. The MENA region nationalizes energy resources. It takes longer for governments and regulators to push innovation at a rate similar to that of free markets. I believe that once the MENA government openly announces the regulatory framework around bitcoin mining, we can expect to see an influx of miners and foreign investments from all over the world. PermianChain makes it possible for regulators and governments to maintain a clear understanding of projects, enjoy low-cost conciliation, and allow for increased transparency.
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