Soaring Bitcoin Price Boosts Fortunes of Cryptocurrency Mining Firms

The soaring price of bitcoin has boosted the fortunes of the cryptocurrency mining industry, which is seeing record profits amid surging investor interest in digital assets. The infrastructure to support bitcoin mining has scaled up in low-cost facilities outside the traditional data center industry, supported by a sophisticated financial ecosystem.

The value of bitcoin has set record highs in recent weeks, moving from $10,000 in September to a peak of $42,000 last week before settling at around $35,000 today. Miner revenue has soared along with the price of bitcoin, boosting the share prices of publicly-held mining firms and triggering large orders for new capacity.

Public mining company Marathon Patent Group today announced plans to raise $250 million through a direct stock offering, and plans to use the proceeds to buy new mining computers and expand the company’s infrastructure.

Another example is today’s announcement that cryptocurrency colocation specialist Compute North will partner with Foundry Digital to add 47 megawatts of bitcoin mining capacity at its facilities in the United States. The companies say their target clients are institutional investors seeking to acquire bitcoin, which is actively traded as a commodity in the United States, as well as serving as a global digital currency for transactions.

Compute North offers large-scale facilities in industrial facilities in Texas and South Dakota, as well as a Nebraska site where it deploys containerized data modules. Foundry is part of Digital Currency Group, a financial services company focused on cryptocurrency, and specializes in financing and staking bitcoin mining operations.

“This partnership will further strengthen our relationship as we make bitcoin mining more accessible to institutional investors and businesses in North America,” said Mike Colyer, CEO of Foundry.  “We have been hosting mining devices with Compute North for more than one year now and it is one of our preferred hosting providers for our clients.”

Improved Pricing & Profits Drive Miner Growth

The demand for more infrastructure is driven by the improved profitability for mining operations as the price of bitcoin has climbed. The return on a terahash per second (TH/s) of computing power has improved from 7.8 cents in October to 28.4 cents last week, according to Coindesk.  As a result, the total hashrate (computing power) of the bitcoin network this week surged to a record 150 TH/s, up from 105 TH/s at this time last year.

Foundry helps mining operations buy hardware for bitcoin mining, which usually uses specialized semiconductors known as ASICs (Application Specific Integrated Circuits). In the Compute North partnership, Foundry will acquire 14,000 MicroBT Whatsminer mining devices, with half owned by Foundry and being housed at Compute North facilities.  The other half will be available for sale through Compute North through a “mining-as-a-service” managed blockchain offering for investors, with block rewards sent to customer wallets. Investors can either purchase the operating devices directly from Compute North or finance them through Foundry with a down payment, and get the mining machines running at Compute North’s facilities.

Last month Foundry announced a similar arrangement with Core Scientific, another large North American mining specialist, providing $12 million in equipment financing to the company and an additional $11 million for Core Scientific’s customers to acquire mining gear.

The price surge has also been good news for the handful of mining operators that are publicly-held. After a large run-ups in their stock prices, four bitcoin mining companies now have market capitalizations in excess of $1 billion, including Marathon, Hive Blockchain, Riot Blockchain and Bit Digital.

Industrial Scale, Crypto Economics

Bitcoin is a digital currency developed in 2009 by an anonymous programmer named Satoshi Nakamoto. It is based on a public ledger known as the blockchain, with each transaction verified using cryptography. Bitcoin incentivizes computer users to process transactions by offering financial rewards paid out in virtual currency (hence “mining”). As users share more computing power with the network, they improve their chances of earning rewards.

The rise of bitcoin and other cryptocurrencies like Ethereum has led to a new breed of computing facilities featuring high-density hardware, low-reliability electrical infrastructure and off-the-shelf enclosures. These hashing centers often are built in old warehouses and house servers on shelving from hardware stores.

Bitcoin miners yearn for cheap space and power, and lots of it. They typically run high-density racks and invest less in backup infrastructure, which is a key component of the value of a commercial data center. Some utility-scale bitcoin miners have developed modular data centers or immersion containers in which servers are dunked in pools of coolant. Some data center providers have begun offering “variable resiliency” space with limited generator or UPS support as a lower-priced option for bitcoin mining companies.

The volatile nature of bitcoin pricing has made mining operations a challenging customer segment for the data center industry. Back in 2014, a number of bitcoin firms leased space with providers like CenturyLink and C7 Data Centers, but many of those customers experienced financial challenges when the price of bitcoin declined.