(Bloomberg) – The rush for digital gold in Texas is losing its luster as Bitcoin miners struggle financially, leaving behind what some fear is a wasteland of unfinished sites and equipment abandoned.
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In an effort to become a haven for crypto mining, Texas has aggressively lured miners with cheap energy and supportive regulations, prompting many to take out billions in loans to buy expensive machinery and build infrastructure.
However, soaring energy costs, a sharp drop in Bitcoin prices, and increased competition squeezed profit margins and made it difficult for miners to pay off debt. Some are on the verge of bankruptcy.
“There are just tons of assets everywhere, it’s like a mess.” said Mason Jappa, managing director of Austin, Texas-based crypto-mining services company Blockware Solutions. “I got messages about transformers, switches, mobile data centers and containers for mining, they’re just sitting there.”
There are many losers if the Bitcoin mining industry goes bankrupt. On the one hand, local authorities have provided incentives such as tax allowances reaching tens of millions of dollars. The planned electricity production that the region badly needs to avoid a new energy crisis may not materialize. Some developers have made large investments to build Bitcoin mining facilities. The average cost to have one megawatt mining infrastructure capacity is currently around $300,000 in the state, the high end, according to Jappa.
Iris Energy said last month it would assess how much and when they would build facilities beyond the initial 20 megawatt build at their Childress site. The company planned to have 600 megawatts of capacity at the site. Iris pulled mining rigs from two sites after defaulting on $108 million in loans. It continues to own the land and other physical assets at both sites, the company said Monday.
Argo Blockchain originally planned to complete its 800 megawatt mining farm in Dickens County earlier this year, but the miner suffered a cash crunch. It warned in October that if new funding was not secured, it would have to “reduce or cease operations”. Core Scientific has warned of potential bankruptcy after announcing plans to build 200-megawatt facilities near Dallas.
The companies represent the biggest players in the Texas crypto mining industry among a dozen crypto mining companies planning to build facilities. They are expected to generate up to 7 gigawatts of power demand from the Texas grid, with 3 gigawatts coming in 2023, based on announcements and filings with the U.S. Securities and Exchange Commission.
It will take several years for Lancium, which has two sites with a capacity of more than 1 gigawatt in Taylor and Pecos counties, to fill the facilities, a spokesperson said. In addition to miners, the firm plans to host different applications such as high performance computing.
Riot Blockchain, Argo, Compute North and Core Scientific, Genesis Digital Assets and Bitdeer did not respond to requests for comment.
“A lot of the supply chain issues that were strong in the Covid era are not necessarily a bottleneck anymore.” said Matthew Kimmell, digital asset analyst at CoinShares. “What may be a limitation is just their cash on hand.”
Energy costs for miners were high throughout the year due to Russia’s invasion of Ukraine and heat waves across Texas in the summer. Tighter monetary policy from the Federal Reserve and implosions by major crypto companies have sent Bitcoin prices down more than 60% this year.
After China banned crypto miners last year, Texas has sought to fill the void in order to fuel the state’s rapidly growing economy. But because mining depends on power consumption, the wave of new demand threatens to strain a network still trying to recover from outages during an extreme winter storm in February 2021 that left million people in the dark for days and more than 200 people died.
Governor Greg Abbott has touted mining as a way to help the grid, as machines can be quickly slowed down during times of stress and speeded up to soak up excess wind and solar output that would otherwise be wasted. The ability to reliably vary production from such large demand would be a boon, but the rules that would force miners to act a certain way under certain market conditions are still being debated. Critics fear that existing practices allow crypto miners to dodge the costs of upgrading the network to meet all of their consumer demands.
Abbott’s office did not respond to requests for comment.
Texas has about 1.5 gigawatts of crypto mining capacity, mostly Bitcoin, operating with about 37 gigawatts vying to connect to the state grid as of October 20, according to the most recent data available from the Electric Reliability Council of Texas. This queue has more than doubled in six months.
While the queue indicates growing demand for electricity from miners earlier this year, the amount may be inflated. Power brokers and mining companies may have filed multiple applications for the same mine site, as these applications do not require a filing.
Some applications may not even materialize as those with little bitcoin mining experience are likely to abandon their plans, said Ethan Vera, COO of crypto mining services firm Luxor Technologies. .
(Adds a comment from Iris Energy in the sixth paragraph.)
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