2020 marks a new era for the institutionalization of crypto-currency mining, bringing both advantages and new challenges.
There are very few investments that can offer the kind of infrastructure that is downwardly mobile with the upwardly mobile style of venture capital. The combination of energy arbitrage with the accumulation of a balance sheet in Bitcoin (BTC) can offer such an opportunity. That’s why we’re seeing an avalanche of institutions entering the world of Bitcoin mining and starting to build mega-facilities.
Securing the next generation hardware
At its maximum capacity in 2018, Bitmain was able to produce more than 95,000 mining rigs per week. However, from that point on, production levels dropped, in part because of an ongoing legal dispute. In the other corner, MicroBT is set to deliver 1.3 million rigs this year, adding 25,000 rigs per week to the equation.
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The West only receives a finite allocation of these new machines, and with 17 publicly traded mining companies and ASIC financiers and large co-locations announcing weekly purchases, we can see that supply of new equipment quickly drying up. Establishing relationships with manufacturers today is critical to ensuring a wide allocation of these new equipment. How do you get on this waiting list? With a large checkbook.
Reduce capital expenditures
Economies of scale contrast with decentralization. However, like most other industries, the mining world rewards size. Large mining companies receive discounts on retail prices for ASIC equipment. With an average return period of about 300 days for new generation equipment, the discount can reduce this period by more than a month. Large mining companies also have to give fewer advances, in some cases about 20% compared to more than 50% for retail sales. This allows the miners to get more machines and build their facilities faster.
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On the infrastructure side, in most cases, the construction of a 30-megawatt farm can be done at a much lower cost per megawatt than a 3-megawatt installation.
Maximize operating profits
If you want cheap electric power, you’re going to spend a lot of capital on things like buying a piece of land, building a large infrastructure, acquiring power plants and other equipment, financing performance bonds, etc. While there are miners who take advantage of small sources of cheap energy, on a large scale, the miners who earn the most are the biggest. They are able to put up the necessary capital to secure the best places. And as many of us already know, the cost of electricity is one of the factors that define the success of the miners.
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In addition to seeking cheap electricity, large miners can negotiate lower commissions for the pool, commissions for the development of firmware and ASIC management software. They can reduce the amount of work required per megawatt, boost efficiency in their management and improve the effectiveness of energy use.
Access to better financing mechanisms
Kryptonie mining is a business that demands too much capital. It requires updating equipment and buying more constantly. Filling a 10-megawatt farm with state-of-the-art equipment can cost nearly $10 billion, depending on the price at which the equipment was purchased.
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Access to various forms of financing, such as debt, equity, equipment financing and ASIC equipment financing, play a key role in keeping mining farms large and enjoying the profits mentioned above.