(Bloomberg) -- Bitcoin miners saw the biggest drop in computing power since China banned crypto mining last May due to a record heatwave in Texas.
A leading indicator of closures, Bitcoin mining difficulty, has plunged 5% -- the largest drop over a two-week period since Chinese operators were forced to unplug millions of machines due to a sweeping mining ban by the central government. Bitcoin mining difficulty measures how hard a miner has to work to mint a limited supply of coins. In May 2021, Bitcoin mining difficulty fell nearly 16% and remained down for two straight months.
The Lone Star state has dethroned China as one of the largest Bitcoin mining hubs thanks to its low energy prices and liberal regulation on crypto mining. However, the extreme heat in Texas this summer has wreaked havoc on mining operations. A sudden change in ambient temperature could significantly accelerate mining machines’ depreciation rate by damaging their chips.
Nearly all industrial-scale mining operations were shut down due to a heatwave-induced power crunch last week. Most miners in Texas turned off their machines upon the request of the state’s power operator, Electric Reliability Council of Texas. While some miners may have taken a loss, others could compensate part of that loss or even make a profit from turning off the depending on their power purchase agreements, BTIG analyst Gregory Lewis wrote in a research note. Some can sell power back to the grid for a higher price, the note said.
Bitcoin mining, which secures the Bitcoin blockchain network with energy-intensive computers and earn rewards in the token, has become a multi-billion dollar industry as the digital currency saw a historic bull run last year. But stumbled as Bitcoin prices have fallen more than 50% this year.
Extreme weather has become one of the biggest challenges for US-based Bitcoin miners since most of their operations are in the crypto-friendly Southern states. States like Georgia, which is also facing a heatwave, are seeing rapid growth in mining operations.
Mining companies continue to deploy tens of thousands of machines across the US. Crypto mining giant Marathon Digital Holdings expects to install about 66,000 rigs with a 90-megawatt facility in Texas and a 110-megawatt mining farm in North Dakota. The company has another 68,000 rigs waiting to be energized in West Texas. Meanwhile, Riot Blockchain is building out its one-gigawatt site after putting a 750-megawatt facility in operation in Texas.
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