Original author: Colin Harper 

Original source: Hashrate Index

Wu said as a Hashrate Index Chinese content partner

Summary

It has been over two years since the Chinese Bitcoin mining ban and the migration of mining power. Since the Chinese government expelled most of the industry's business overseas, the Bitcoin mining industry has undergone irreversible changes.

After this historic event, the profitability of mining skyrocketed, and miners calculated their "good fortune" in mining during this brief "super cycle of mining power prices", followed by a period of darkness in mining power prices during the bear market in 2022. In November of last year, the price of Bitcoin reached $15,000, and a few mining commentators speculated that the price could reach $30,000 by mid-2023. But Bitcoin likes to disrupt people's expectations.

Today, two years have passed since the mining ban, and the Bitcoin mining industry has matured a lot. There is no doubt that the mining business is low-key, tenacious, and transient in 2023, but the "shadow play" of Bitcoin mining has ended, and the internal operations of the Bitcoin mining industry have become more transparent compared to the past.

Today, listed mining companies and private mining companies dominate the mining landscape. Especially in North America, with the collapse of mining operations in China, the Bitcoin mining industry has flourished since its grand appearance. And mining power has also overflowed to new mining centers outside of the United States, including Russia, the Middle East, Latin America, and Southeast Asia. The distribution of mining power on a global scale is more balanced than ever before.

As the industry has developed from a stumbling start to today's growing maturity, miners are learning lessons from the market chaos of 2022. They are constantly participating in fund management and financing practices, and previously bankrupt mining companies are reorganizing and emerging with more sound operating strategies.

For the Bitcoin mining market, 2022 can be said to be a shocking year, and it has laid the foundation for active participants to stand firm this year. As we approach and pass through the Bitcoin halving period of 2024, there are expected to be more fluctuations. Cheap energy is the key to this game, and miners are particularly concerned about mining machine procurement and fund management.

Any measures to reduce costs in the above areas and elsewhere will be key to surviving the halving period. For some lucky mining companies, this can be achieved by negotiating lower electricity rates, especially those large enough to participate in demand response programs; other companies can only reduce electricity costs by downclocking the machines; some miners are looking for more affordable hardware facilities and logistics costs; while others are reducing costs by recycling waste heat; for large mining companies, reducing administrative costs is also crucial.

If that's the case, Bitcoin mining is no longer a "plug-and-play" game. Operators who can obtain the cheapest electricity and/or have effective expansion and operation strategies will be better able to survive after the halving by reducing capital and operating costs. Since the ban in China, the center of the mining industry has shifted from the East to the West, making it easier for North American investors to enter the industry than ever before, with new attention and capital pouring into the field at unprecedented speed. In the coming year, some more ordinary investors, especially those retail investors with low MOQ hosting transactions, may face difficulties.

As the Bitcoin industry continues to grow and becomes closely connected with institutional finance, we expect the consolidation trend that began in 2021 and accelerated in 2023 to continue. At the same time, Bitcoin's hash rate has never had such a wide global footprint, and it is expected to continue to spread globally.

Miners in North America need to remember that they are not only competing with neighbors, but also facing the booming mining industry in the Middle East, as well as China, Russia, Latin America, and other regions.

Each region and background has its advantages and disadvantages, and some forward-thinking miners have started to diversify their computing power across different jurisdictions through connectivity and resources.

In the second quarter of 2023, we saw many miners taking advantage of low mining machine prices to plan for future expansion. The rebound of Bitcoin and the breathing space after the tightening of hash rate prices in 2022 (with sufficient help) provide miners with the opportunity to catch their breath at the bottom of the hash rate price in 2022. It is crucial for medium-to-high-cost miners who did not make a profit in most of the fourth quarter of 2022 to have a rebound in coin price and stable hash rate prices.

Now, as the second quarter has ended, Bitcoin prices are falling and hash rate is rising, miners are preparing for the harsh era of the fourth halving. On the basis of the trend last year, mergers and acquisitions, consolidation, and asset slimming sales in 2023 are accelerating, as poorly positioned miners are looking for exit opportunities and advantaged miners are preparing for expansion. We expect the halving to accelerate these trends.

As the breathing period of hash rate price in the second quarter gradually comes to an end and there is less than eight months left until the halving, the slogan of miners is simple: survival and preparation.

Hash rate, mining difficulty, and hash rate price

Slowing hash rate growth, rising mining difficulty

2023 is an important year for the growth of Bitcoin's hash rate (although it has not met miners' expectations). The hash rate in 2022 grew more than in 2021 (the year of the Chinese mining ban), and the hash rate growth in 2023 is estimated to exceed that of 2022.

However, in the second quarter, the growth of hash rate slowed down, which also indicates that the secondary impact of the hash rate "migration" is emerging.

From this, it can be seen that the high concentration of computing power in North America (45-50%) has formed a new seasonal impact on Bitcoin's computing power: the heatwaves in summer overload the power grid across the United States, forcing miners to reduce their mining capacity, thereby suppressing the growth of computing power. Specifically, Bitcoin's seven-day average computing power increased by 7.5% in the second quarter of 2023, far less than the 35% increase in the first quarter. This slow growth is mainly due to the summer temperatures interfering with operations in mining hotspots such as the United States. However, it is worth noting that compared to last year's summer heatwaves, the growth of computing power this summer has not been greatly affected.

Currently, Bitcoin's computing power has grown significantly in 2023. As of July 22, 2023, Bitcoin's computing power has increased by 50% compared to the beginning of the year, from 255 EH/s to 380 EH/s.

Figure 1: Changes in Bitcoin's computing power 7-day and 30-day moving averages

With the growth of Bitcoin's computing power, Bitcoin's mining difficulty increased by 8.1% in the second quarter of 2023 and by 52.5% since the beginning of the year (as of July 22, 2023).

Figure 2: Overview of Bitcoin's mining difficulty changes

The mining difficulty has decreased by 2.94% after reaching a historical high of 53.91 T. Last summer, due to heatwaves ravaging the United States and causing a decrease in computing power, Bitcoin miners adjusted the difficulty three times in a row. Since the beginning of 2023, miners have largely avoided the scorching heat, and heatwaves have not caused significant disruptions to computing power. However, as we enter August (the second hottest month in U.S. history), if the weather becomes extreme enough, we may see more negative difficulty adjustments. Nevertheless, any disruptions in computing power can be easily compensated by expanding mining in other parts of the world.

Stagnation After the Surge in Computing Power

Recalling what we mentioned in our end-of-year report in 2022 (if you're a miner, you don't need a reminder), the computing power price hit rock bottom in the fourth quarter of last year. It reversed in the first quarter, providing some relief to miners. In the second quarter, the computing power price rebounded quickly and stabilized under a combination of the NFT boom decline (which we will further discuss in the ordinal/inscription section), Bitcoin price recovery, and slow computing power growth.

The average computing power price in Q2 (in USD terms) was $77 per PH/day, a 5% increase from the Q1 average of $72 per PH/day and a 30% increase from the Q4 average of $59 per PH/day. The average computing power price in Q2 (in coin terms) was 0.00275 BTC per PH/day, a 15% decrease from the Q1 average.

Figure 3: Overview of the daily average and 7-day average values for computing power prices in USD terms

All in all, Q2 was a feast for profit-starved miners. Considering that the break-even point for the S19j Pro miner is $51.25 per PH/day with an electricity cost of $0.07 per KWh, one can imagine how many miners were uneasy towards the end of 2022 (especially in the North American region). Q1 provided some slight relief to this profit squeeze, and Q2 further mitigated the situation.

However, with the stagnation of Bitcoin's upward trajectory and the difficulty reaching its all-time high in July, the pressure has shifted back to computing power prices. Currently, the computing power price in USD terms is $72 per PH/day, and in coin terms, it is 0.00244 BTC per PH/day.

Figure 4: Comparison between Bitcoin computing power prices and mining difficulty Ordinal and Inscription: Miners stop "infighting" and fall in love with "jpeg" format images

In 2023, we remind Bitcoin miners that transaction fees will have a significant impact on their bottom line, and they should partly thank the influence brought by "bored apes" and "Pepe jpegs".

2022, transaction fees accounted for 1.63% of all block rewards. In comparison, the proportion of transaction fees so far is 4.9%, 2.3% in Q1 2023, and 8.11% in Q3. This increase does not come from traditional economic transactions, but from a new way of minting and trading NFTs on Bitcoin.

These digital images, videos, texts, and electronic game files, known as inscriptions, can include arbitrary data in Bitcoin transactions using specific transaction conditions. Unlike NFTs on Ethereum, Solana, and other blockchains, these NFTs are actually uploaded to the blockchain. To track them, collectors use ordinal theory, a mathematical method of numerical ordering, to mark a single satoshi in each transaction as evidence of the inscription. Based on a first-in, first-out basis, ordinal theory can track every satoshi since the genesis block.

Like paper money and coins, collectors also look for rare mints with monetary value, and the inscription craze has created a market for "rare satoshis."

The discussions surrounding inscriptions and ordinal theory have led to an explosion of block transaction activity on the Bitcoin blockchain, resulting in transaction fees reaching their highest level since October 2020.

Figure 5: Overview of the rarity levels of Bitcoin "satoshis" and the impact of inscriptions on transaction fees

Casey Rodarmor first introduced the concepts of ordinal and inscriptions in January of this year, although he and others had been experimenting with this technology since December of last year.

In February, inscriptions caught the attention of the crypto community, and early adopters rushed to engrave digital art and miscellaneous collectibles. This novel NFT method attracted many NFT traders, collectors, and creators from the Ethereum ecosystem, accelerating the frenzy and the growth of transaction fees. So far, there have been over 19.6 million inscriptions on the Bitcoin blockchain.

The adoption of ordinal inscriptions in February immediately doubled miners' revenue from transaction fees compared to 2022. In 2022, the average share of block rewards obtained from transaction fees was 1.63%; whereas, so far, the average share in Q1 is 2.3%, in Q2 it is 8.11%, and the average share for the whole year is 4.9%.

When the inscription craze reached its peak in May, miners were making more profits from transaction fees than from block subsidies. It was common to receive blocks with 12.5 or more bitcoins as rewards, which was the previous halving period's block subsidy.

Figure 6: Changes in block capacity under the influx of inscriptions, showing the proportion of transaction fees to block rewards and the number of transactions

The controversy surrounding inscriptions is due to various reasons, one of which is their benefit from the data discount provided by SegWit. Inscription data is stored in the witness portion of the block (introduced through the SegWit upgrade in 2017). Compared to other data blocks in regular transactions, the per-byte transmission cost of witness data is lower, resulting in lower transaction costs (in satoshis) per byte of data in inscription transactions. The graph below illustrates the final effect of the SegWit discount, showing the difference between the number of transactions and the block size from February to May. The blocks were filled with inscription data (such as images and text), but the number of transactions did not increase at an astonishing rate.

Figure 7: Average daily transaction volume per unit block and average daily block size

Figure 8: Overview of the proportion of transaction fees to block rewards and block sizes

In the second quarter, "BRC-20 tokens" dominated the inscription market, and the number of inscription transactions and actual transaction fees started to rise. Initially, most inscriptions were in JPG and other image formats, but BRC-20 transactions require less witness space and more transaction field space, incentivizing a completely different level of transaction activity.

As shown in the figure below, trading activity accelerated in April and reached its peak in early May.

Figure 9: Daily average volume of inscription transactions and their total volume

The BRC-20 token standard was initially introduced in April 2023, bringing a wave of minting similar to Ethereum to the realm of inscriptions. Prior to this, inscription creators would mint an entire collection and then auction it off in a very basic over-the-counter manner on Discord servers, Twitter, and other forums; unlike popular NFT collections on other blockchains like Ethereum and Solana, where users can mint their own NFTs from auctioned collections, this option does not exist for inscription collectors.

The BRC-20 standard changed this. Now, using the OP_CODE field of Bitcoin, collection creators can create token parameters with fixed supply. Once the template is broadcasted, anyone can mint tokens in the series according to the parameters of the token. When BRC-20 gained popularity in May, a first-come, first-served mechanism incentivized engravers to bid fees, vying for the opportunity to be the first to mint tokens of a new series. These minting transactions are also OP_CODE transactions, so they do not benefit greatly from SegWit discounts, as the cost per byte is higher.

Figure 10: BRC-20 OP_CODE example

This minting incentive and BRC-20 transactions did not benefit significantly from SegWit discounts, resulting in a sharp increase in transaction fees in May, as shown in the figure below. We can also observe that after the parabolic increase in minting activity in May, it began to stabilize in July.

Figure 11: (Inscription) Average Daily Transaction Fees and Total Transaction Fees

The first wave of NFT frenzy in Ethereum appeared in the form of CryptoKitties in 2017, but it wasn't until the historic bull market in 2021 that NFTs truly started to have a noticeable cultural impact. For example, Eminem and Snoop Dogg portrayed bored monkeys in a virtual performance at the MTV Video Music Awards (VMAs). NFTs have started to integrate into people's daily lives, not to mention their impact on mining revenue.

We expect ordinal inscriptions to have a similar staying power and create cyclical booms and busts in transaction fees, especially during bull markets when interest in Bitcoin and cryptocurrencies is high.

However, this is not to say that miners should bet on inscriptions to keep hashing power prices stable. We believe that digital collectibles have captured cultural consciousness, and inscription trends are expected to enhance mining revenue, particularly when developers and entrepreneurs start experimenting with new applications using spatial blocks.

Stable Trend in Mining Equipment Prices

Since the end of the bull market in December 2021, Bitcoin mining equipment prices have been on a freefall, but there seems to be some signs of recovery in the third quarter of 2023, at least for now.

Prices are still generally on a downward trend, but market data shows indications of stabilization in mining equipment prices for July, especially for the new generation devices. Below, we list the quarterly changes in prices for some popular mining machine models (data from Luxor's mining equipment trading platform RFQ).

· S19 XP (-2.64%) · S19 j Pro+ (2.07%) · M30 S++ 112 TH/s (-10.34%) · S19 Pro 110 TH/s (-15.63%) · S19 j Pro 104 TH/s (-16.88%) · M30 S 88 TH/s (-25%)

You can clearly see that low-powered new generation models like S 19 and M 30 S are gradually losing popularity, while the premium for new generation models like S 19 XP is rising (as miners are looking for more efficient machines to prepare for the halving period).

From the chart below showing the price changes of mining machines in the second quarter of 2022, although the prices of Bitcoin mining machines decreased in the second quarter of 2022, they started to rebound in June and July, especially the next-generation models mentioned earlier.

Figure Twelve: Price Trend of Popular Models

It is worth noting that compared to other S 19 J series models, S 19 J Pro+ showed appreciation at the end of the quarter with a premium per TH. S 19 J Pro+ has just been launched, and like previous new machine launches, the price is lower when miners place futures orders and the performance of the machine is unknown. As miners gradually observe the operation of S 19 J Pro+ and the trading shifts from the futures market to the spot market, as uncertainty subsides and the model becomes more transparent, the machine price rebounds. We also saw this pricing dynamic in the S 19 XP launched last summer.

It is worth noting that new generation devices like S 19 J Pro, S 19 Pro, and M 30 S++ are currently being actively traded. For most operators, older models in these series, such as regular S 19 and M 30 S, are becoming less popular, as can be seen from the price drop of M 30 S in the chart (when the hash rate price dropped to its lowest point in November 2022, the value of M 30 S plummeted).

For miners whose mining operation electricity cost is equal to or higher than the average electricity cost (e.g. $0.075/KWh), any model with an efficiency value lower than 34 J/TH is not worth investing in (unless Bitcoin experiences a significant surge in the next 12 months, which we are not betting on. Further analysis on the mining machine payback period is provided in the report). With the Bitcoin halving in 2024 and the introduction of a large number of new machines in 2023 and 2024, yesterday's next-generation machines will become today's middle-generation machines. However, depending on the price per TH, investing in middle-generation and next-generation machines may be a good strategy to double profits, provided that 2024/2025 is a bull market. Similar to miners buying S9 for a few cents last year and selling them for $50/TH at the peak of the bull market in 2021.

S19XP Premium Rises

When miners expand their mining scale in preparation for the 2024 Bitcoin halving, mining hardware prices and Bitcoin prices are not the only factors that miners consider when evaluating mining hardware. Bitmain and MicroBT have released several new models in 2023, and like all new hardware, miners are uncertain about their performance. As the flagship of Bitmain's next-generation mining machines, the Antminer S19 XP has now been tested in the field for a year, but there are still some areas that need improvement in its design (e.g. covering each hashboard with an aluminum panel on one side, as reported by Compass' Mining Memo), but miners generally consider it to be a stable machine.

As the halving approaches, miners are prioritizing machines that have advantages in efficiency and hash power. Therefore, the premium for next-generation hardware such as the Antminer S19 XP and Whatminer M50S++ is increasing compared to older models.

Figure 13: Comparison of premiums between S19XP and other models

As shown in the figure above, the premium of S 19 XP reached its lowest point in the second quarter but has been rising since June. As we enter the third quarter, the premium of S 19 XP is approaching the high point at the end of last year, when the price of Bitcoin was between $15000 and $16000, and every analyst called for a price reduction. With the rapid recovery of Bitcoin in the second quarter, as well as the surge in transaction costs under the frenzy of mining machines, the price of computing power has been continuously rising, and the relatively low premium from the previous quarter is a response to the improvement of market dynamics. When the marginal cost of mining improves, miners do not urgently need to replace efficient hardware, so the premium of XP decreases accordingly. Now the price of computing power has returned to an uncertain level, especially with 9 months left until the halving, and miners are increasingly inclined to refer to the post-halving mining economy, which has led to a rise in the premium once again.

We also note that compared to the Antminer S 19 XP, the price premium of the M 50 S series is higher. We speculate that there are two reasons for this premium: 1) Bitmain produces more machines than MicroBT, so it can obtain better prices from chip manufacturers, 2) Whatsminer is becoming a strong competitor to Antminer.

As miners prepare for the halving, next-generation models become their preferred choice. The premium for these models has also steadily increased over the past year.

New models and liquid-cooled, oil-cooled models

Speaking of new devices, here are some new miner models launched last quarter.

· S 19 j XP (151 TH/s) - 21.5 J/TH

· S 19 k Pro (136 TH/s) - 24 J/TH

· M 50 S++ (150 TH/s) - 22 J/TH

· M 56 S++ (immersion 230 TH/s) - 22 J/TH

· M 53 S++ (Hydro 320 TH/s) - 22 J/TH

We have started to notice more and more liquid-cooled and oil-cooled mining farms, especially as the halving approaches and manufacturers expand their offerings for these types of miners. Under normal circumstances, these machines can provide double the computational power for miners with the same energy input, and when they are overclocked, they can even provide more computational power.

However, this output comes at a cost: higher capital expenditure, more hardware, and higher maintenance costs.

1. Hydro Cooling: Hydro cooling, also known as liquid cooling, utilizes the cold plate water cooling technology and uses deionized water as the heat transfer medium. Unlike immersion cooling, hydro cooling typically uses a closed-loop system where water circulates in the heat exchanger without coming into contact with electrical components. This method achieves efficient heat transfer due to the higher heat capacity of water compared to air and oil. Compared to air cooling solutions, hydro cooling offers advantages such as improved cooling efficiency, scalability, flexibility, and lower operating costs.

2. Immersion Cooling: Immersion cooling submerges electronic components (such as servers or mining rig chips) in a non-conductive liquid or coolant. This cooling method allows the components to directly contact the coolant, providing better heat dissipation. Immersion cooling has many benefits, including improved cooling efficiency, reduced thermal stress, enhanced performance, extended equipment lifespan, and smaller physical footprint. By eliminating the need for air cooling, immersion cooling enables higher density deployment and reduces noise pollution in computing environments.

There are many similarities between immersion and hydro cooling systems. The main components of an immersion cooling system include:

· Water tank

· Coolant

· Pump

· Filtration system

· Heat exchanger

· Control system

· Power distribution unit (PDU)

The main components of a hydro cooling system include:

· Rack

· Coolant

· Pump filtration system

· Heat exchanger

· Control system

· Power distribution unit (PDU)

The biggest difference is the coolant used in the cooling systems (water or dielectric oil or similar non-conductive fluids). The hydro cooling system utilizes specially deionized water as the coolant. Maintaining water quality and minimizing environmental impact are key aspects of hydro mining setups. Miners adopt many techniques and measures to maintain their hydraulic bitcoin miner in tune, such as filtration systems for sediment and impurity removal, regular water quality testing, pH adjustment, removal of pollutants through chemical processes, and adherence to environmental factors. Implementing water circulation and reuse systems helps reduce water consumption, comply with local regulations, and ensure proper discharge management. In between, MicroBT recommends using first-grade deionized water that complies with the national standard GM/T 6682-2008.

In immersion cooling systems, the liquid must be non-conductive as it directly contacts the mining rig components. The choice of coolant depends on various factors such as dielectric performance, thermal conductivity, and compatibility with electronic components. Miners typically use fluorocarbon-based liquids such as 3M, Novec, or Galden in immersion cooling systems because they are non-conductive and have high boiling points. These coolants achieve efficient heat transfer while ensuring the safety of the submerged components.

In the coming years, both oil-cooled and water-cooled mining farms are expected to continue steadily generating the total hash rate of Bitcoin. We have seen it become the standard in Middle Eastern markets such as the UAE, where these countries are emerging and will continue to see significant investments in the industry.

New Models and 3 Nanometer Chips Coming in 2024

There are reports that Bitmain's next-generation Bitcoin miners, the S21 series, may be released next year. The original plan for the Antminer S21 was to be launched in 2025, but it may be available for pre-order next year. The efficiency of these machines is estimated to be 14-15 J/TH, but the exact specifications and hash rate are yet to be confirmed. This is only speculation for now, but it is evident that Bitmain is developing a new Antminer series that is more efficient and powerful than the current models.

Although it is mere speculation, it is believed that these devices will use 3 nanometer chips. MicroBT has been reported to have used Samsung's 3-nanometer chips in the oil-cooled model of the Whatsminer M56 s++.

Stable Power Market Situation

In 2023, the power market seems to be gradually returning to normal, especially in many states in the US where electricity prices have been declining since the peak in 2022. Bitcoin miners around the world can finally breathe a sigh of relief as prices are slowly returning to normal, and at least in public forums and media reports, the industry is now paying relatively less attention to this topic.

Although the situation appears better than last year, miners should still remain cautious and not assume that they have seen the end of the energy crisis. There is still a significant imbalance in the global energy market, which could lead to another increase in electricity prices, especially in extreme weather conditions.

This chapter will discuss energy market trends that may have positive or negative impacts on miners' access to cheap electricity. Based on historical data and future predictions, we will also analyze the electricity prices miners need to calculate their hash rate after the halving.

Gradual Normalization of Natural Gas Prices

In most modern power markets, the price of electricity is determined by the marginal production cost of the easily dispatchable final source of power, usually natural gas-fired power plants. Given the importance of natural gas prices to the electricity market, this subsection analyzes the current state of the global natural gas market and provides an overview of the latest developments in the international power market to better understand future trends.

From the figure below, it can be seen that in the second half of 2022, natural gas prices in Europe and the United States soared to historical highs. As usual, electricity prices also rose, causing significant issues for the unhedged portion of the global Bitcoin mining industry. At the end of 2022, Compute North and Core Scientific, the two largest Bitcoin mining hosting providers in North America, declared bankruptcy, partly due to the increase in electricity costs.

Figure 14: Comparison of natural gas prices in Europe and the United States

Fortunately, nature bestowed Europe with the mildest winter ever in a miraculous way. This led to a significant reduction in natural gas demand, allowing European countries to replenish their inventories. As a result, the European natural gas benchmark price (Dutch TTF) plummeted and is currently at its lowest level of inflation adjustment since September 2020, with a price of $25.96 per MMBtu, a decrease of 93% compared to the peak of $346 per MMBtu in August 2022.

The U.S. natural gas benchmark (Henry Hub) also experienced a drop, though less severe than Europe. Currently, its price is $2.56 per MMBtu, a decrease of 73% compared to the peak of $9.34 per MMBtu in August 2022.

However, according to the U.S. Energy Information Administration and market consensus, natural gas prices might slightly rise in the coming months. The Energy Information Administration predicts that the average Henry Hub price in the second half of this year will be $2.80 per MMBtu, a 10% increase from the current price of $2.56 per MMBtu. This forecast aligns with the market consensus, as people expect natural gas prices to slightly rise in the next winter and then decline in the spring, based on the futures curve in the above figure.

Natural gas prices are highly unpredictable

Therefore, experts believe that natural gas prices will maintain a relatively comfortable level in the coming months. We have no reason to oppose this consensus. However, one point still needs to be emphasized, that in this era of volatile market conditions, any energy price forecast comes with uncertainty. Due to ongoing geopolitical events in Europe and structural energy market issues, predicting natural gas and electricity prices is more complex and unpredictable than ever before.

Therefore, miners should be prepared for the worst and ideally hedge their electricity input costs for the next few months and year.

US electricity prices falling from historic highs

Natural gas and electricity prices are closely linked, so the trajectory of natural gas serves as a general guide for global electricity prices. In this section, we will delve into the forecast of future industrial electricity prices in various US states.

As shown in the chart below, electricity prices in most US states have significantly declined over the past year.

Figure 15: Comparison of average industrial electricity prices in US states for Q2 2023 and Q2 2022

In many states, the decline in natural gas prices has been helpful, and the summer of 2023 has been more forgiving in terms of record-breaking high temperatures compared to last year. As we will mention later, based on electricity prices, hosting rates have either decreased or remained stable in various states.

Speculation on future industrial electricity prices in US states

The polarization between political parties means that citizens have differences on every topic, including everything from equal rights actions to new Barbie movies, so energy policies are inevitably involved in the ongoing culture wars. Generally speaking (with Texas being a notable exception), red states prioritize fossil fuel and nuclear power base load, as well as hydroelectric power (where meaningful) using renewable energy. Meanwhile, blue states, particularly California and New York, prioritize renewable energy like solar and wind power at the expense of nuclear power and natural gas.

Analysis of the situation of summer production cuts in Texas

Summer is the most challenging season for North American Bitcoin miners for two reasons. Not only do cooling requirements increase during the summer heat, but spot electricity prices also tend to rise as everyone turns on their air conditioning, which is typically the high-demand season and time for tourism activities. These increased electricity prices often force miners to periodically reduce their operations. In this chapter, we will analyze how summer heat affects mining operations in Texas.

However, in most states, summers are relatively mild, although Texas and California have experienced issues with their electricity grids during periods of extreme heat and storms.

Luckily, so far Texas has escaped the worst and record-breaking heat wave, so the reduction in production by miners has been less than expected during these periods of particular pressure.

In Texas as well as other electricity markets, there are several factors driving production cuts. One common factor is that miners often reduce production during periods of skyrocketing spot electricity prices. As shown in the graph below, the spot electricity prices in the West Texas day-ahead market have been consistently lower this July compared to the same period last year.

Figure 16: Comparison of average hourly electricity prices in West Texas in July 2023 and July 2022

We can see that the average prices between midnight and noon are much lower than last summer. However, the prices typically peak around 5 pm, and this summer's peak average price is slightly higher than that of 2022.

Most Bitcoin mining in Texas will reduce load when spot electricity prices exceed the breakeven threshold per MWh, as shown in the graph above. As we can see, this typically occurs during a six-hour window from 3 pm to 9 pm. A six-hour reduction means that most Texas Bitcoin miners can expect to achieve approximately 75% uptime during July.

Figure 17: Overview of Riot's monthly machine uptime in 2022

The significant reduction in Riot's mining farm's summer effective uptime provides us with a real-world case study of ERCOT's production cuts. As shown in the graph above, Riot's expected normal uptime during January to April is around 90%. With rising temperatures and electricity prices, this mining giant in Texas experiences a significant decrease in expected normal uptime, operating at only 54% to 71% capacity from June to September. Similar to many other miners in Texas, Riot can significantly reduce its actual electricity costs by reducing load during peak hours.

1. Different forms of "production cuts"

Miners and commentators often talk about "demand response" and "production cuts," and the fact is that Riot has been compensated for this, while some other large operators in Texas have not, so not all "production cuts" are the same.

ERCOT offers four basic types of production cuts. (Special thanks to Evan Neel from ERCOT for providing information for this section).

a. Economic production cuts: This method depends on the spot price of the day-ahead or real-time market. For miners who hedge their contracts through PPAs, their contracts almost always give them the option to relinquish their contracted power and have their power suppliers sell it on the spot market. They then settle financially with their power supplier and collect the difference. This means that for some hedging miners, reducing production when spot electricity prices are high is the best financial interest even though they are already profitable mining at a fixed price. They reduce production because the arbitrage opportunity outweighs the mining profit. Non-hedging miners operate in the same way but without the arbitrage. If spot electricity prices rise above their mining revenue per MWh, they will reduce production. By avoiding the most expensive price intervals (time), they significantly reduce their actual electricity costs.

b. 4 Coincident Peak (4 CP) program: This demand response plan aims to allocate the transmission costs based on the total average consumption during the peak load intervals of four summer months (January to September). By avoiding consumption during these intervals, loads can save a significant amount of money in the long term. Typically, most miners operate mining operations more conservatively during the summer, thus avoiding consuming power during one of these intervals (usually early afternoon to evening). Most summer production cuts for miners can be attributed to this.

c. Ancillary services: Ancillary services are reliability products that ERCOT competitively procures in the day-ahead market. Since they are reliability products, they serve as tools for the operator to balance the grid. Eligible large flexible loads (LFLs) can participate in these markets if they have registered non-controlled load resources or registered controllable load resources with sub-frequency relays installed. For obliged LFLs, they will receive the market clearing price for the product and are required to maintain a specific MW consumption threshold within the time frame specified in their contracts that they must align their load flexibility with (if the grid needs power, they use it; if not, the miners continue mining).

d. ERCOT alerts: In cases of energy scarcity, such as the winter storm Elliott, some LFLs may reduce production when ERCOT issues alerts. This type of production cut is rare and usually occurs in winter, but it is almost impossible in summer.

2. Summer 2023 more "human" than expected

This summer has been milder than expected. In the United States, August and September have historically been hot months, but clearly less so than July. With the hottest months already behind us, the threat seems to have disappeared for Bitcoin miners in Texas and other parts of the United States.

Stable US Hosting Prices and Electricity Market

In 2021, even retail miners in the United States were able to negotiate a flat hosting rate of $0.07 per kilowatt-hour. But these favorable market conditions weren't lasting, as rising electricity prices forced co-locators and hosting providers to increase their rates in the third and fourth quarters of 2022.

According to the Luxor Hosting Rate Index, in January 2023, the average retail hosting rate in the United States reached its highest level in history, at $0.081 per kilowatt-hour, very close to the breakeven electricity price for an Antminer S19j Pro at the time ($0.082 per kilowatt-hour). Fortunately, electricity prices cooled off in the first quarter of 2023, leading to a corresponding drop in hosting rates. Currently, both electricity prices and hosting rates have stabilized. The current average retail hosting rate in the United States is $0.077 per kilowatt-hour, a 6% decrease from the beginning of the year.

Figure 18: Average hosting rates in US states

As shown in the above figure, current prices for hosting services in Minnesota, Oregon, Wisconsin, Michigan, Oklahoma, and South Carolina are $0.075 per kilowatt-hour or lower. Idaho and Illinois, on the other hand, are the most expensive states at $0.095 and $0.09 per kilowatt-hour, respectively.

Keep in mind that our observations of these states are much smaller compared to larger mining states like Texas or Ohio. As shown in the table below, states with more data points often give us a larger difference between the small MOQ rate and the large MOQ rate, as the rack space market is stronger.

Generally speaking, hosting fees will rise or fall based on the fluctuations in electricity prices in each state, with states that have the most data points reflecting this correlation most clearly. Furthermore, hosting service providers are learning from the volatility in the electricity market in 2022; contracts are becoming more flexible, shorter-term, and influenced by monthly adjustments, with long-term contracts of 2-5 years becoming increasingly rare. Hosting providers are increasingly signing "power pass-through" contracts, which allow them to pass on changes in electricity costs to customers; this is particularly common in the oil mining sector, where oil mining operators have a better understanding of price economics and balance contracts on a monthly or quarterly basis to weather periods of rising natural gas prices.

1. Canadian Hosting Prices

Figure Nineteen: Average hosting prices in Canadian provinces

Historically, hosting rates in Canada have been slightly lower than in the United States. The country has abundant hydroelectric resources, but new miners have had difficulty breaking into the market due to a lack of regulatory clarity (see the section on Canada at the end of this report for more on this). Operators in Labrador offer services with a minimum hosting rate of $0.065 per kilowatt-hour on average. Meanwhile, New Brunswick and Saskatchewan are the most expensive provinces, averaging $0.080 per kilowatt-hour.

2. About Hosting

Since 2020, as natural gas prices have risen, prices for well pads and stranded gas operators have also increased across the board. Energy-saving measures and stranded gas operators are also increasingly inclined towards price economics of computing power, and after gaining an understanding of the Bitcoin mining market, they are choosing more balanced profit-sharing arrangements; whereas miners in the past would often receive profit-sharing contracts of 80/20 or 70/30, where the gas operator would receive 20-30% of mining profits (or in some cases, revenue), miners are now receiving 60/40 or 50/50 profit-sharing contracts. Stranded hosting sites are increasing hosting fees as on-grid natural gas increases. Hosting in hydro facilities can provide the best combination of uptime and cost.

The United States and Canada offer the most liquid and transparent hosting markets, which is why prices are higher compared to other countries. Miners in Europe also seem willing to pay a premium, hosting their machines in locations relatively close to the Nordic region, driving up retail hosting fees in that area to around $0.09 per kilowatt-hour.

Miners who are generally unwilling to pay a premium will seek hosting solutions outside of North America, such as in Paraguay or Russia, where hosting costs are much lower. Paraguay has not seen any significant changes in hosting fees in the past few months, with an average retail price of $0.0625 per kilowatt-hour.

According to Luxor's business team observation, the hosting fee in Russia has slightly increased, with an average retail customer electricity price of $0.055 per kilowatt-hour. Over the past year or so, many European and North American miners have withdrawn from Russia due to economic sanctions and the Ukraine war. This outflow has left a vacuum in rack space, quickly filled by Chinese, Kazakhstani, Iranian, Russian, and certain adventurous Western miners. You can read more about mining conditions in these countries in Chapter 5.

So, what will happen to hosting fees in the coming months? Let's focus on the biggest market - the United States. Like any other market, hosting fees are determined by supply and demand. In 2022, with the surge in electricity prices, supply is shrinking. At the same time, due to the backlog of mining investments undertaken during the bull market period in 2021 and the withdrawal of many Western miners from Russia, electricity demand remains strong. We expect hosting fees to remain stable in the next quarter. Nevertheless, electricity contracts (especially for industrial consumers) will become more complex. For power operators, demand response, reduction, and similar power management strategies will be key to maintaining low operating costs, especially before and after halving. Some contracts, such as agreements for wind or solar-powered mining farms, may offer low normal operating hours (10-16 hours) for lower electricity costs (around $0.03-4 per kilowatt-hour); on the other hand, hosting at nuclear or hydroelectric sites, where normal operating hours can reach above 95%, may result in higher costs (around $0.06-8 per kilowatt-hour).

Since China's mining ban, retail mining investors are becoming increasingly interested in Bitcoin mining in North America. Typically, these miners have smaller business deployment scales (possibly 1-10 mining machines), which means they lack the same bargaining power with hosts or power companies for better rates. Therefore, all retail miners with comprehensive hosting/electricity costs equal to or higher than $0.075 per kilowatt-hour should evaluate their strategies after halving.

3. The U.S. will add 25.6 GW of capacity in 2023

This section will cover general trends in the power supply chain and introduce some large-scale power generation projects related to Bitcoin mining. While we will focus on the United States, we will also mention projects in emerging mining countries such as the United Arab Emirates and Finland.

Let's start by understanding the trends in the U.S. power supply chain. The major trend in the U.S. power supply in recent years has been the replacement of coal with natural gas as the base load generation, while rapidly expanding wind and solar capacity. This trend is peaking in 2023, both in terms of coal plant retirements and solar plant commissioning.

In 2023, solar energy will account for over half of the planned power supply growth in the United States.

Figure 20: Expected increase in electricity generation from various sources in the United States in 2023

As shown in the above figure, EIA estimates that in 2023, developers will add 25.6 GW of solar power, 8.2 GW of natural gas, 5.9 GW of wind power, and 2.2 GW of nuclear power. Meanwhile, there will be no significant additions in terms of biomass, geothermal, hydro, oil or coal power plants.

4. Will the European electricity market experience fluctuations due to Bitcoin mining?

In recent years, miners have flocked to Nordic frontier countries such as Norway, Sweden, Iceland, and Finland, while avoiding European southern countries with significantly higher electricity costs. However, if the electricity market returns to normal, mining may become viable in other European countries.

As shown in the figure below, electricity prices in most European countries have plummeted in the past year, with France, Spain, and Germany experiencing price drops of over 50%. However, the electricity prices in these countries are still far from being "friendly". The current spot price in France is $100 per megawatt-hour, almost twice the previous highest mining fee rate for Bitcoin.

Figure 21: Comparison of average electricity prices between Q3 of 2022 and Q3 of 2023 in Europe

Meanwhile, in the northernmost price zones NO 4 and NO 3 of Norway, the spot prices averaged $26/kWh and $39/kWh in the second quarter of 2023, well below the threshold of the highest Bitcoin mining cost. Interestingly, during the energy crisis in the second quarter of 2022, the miners in this price zone even obtained lower prices, with spot market prices requiring only $13/kWh and $26/kWh. In the resource-rich northern part of Norway, where hydro power is abundant and limited interconnection with the European mainland exists, miners were effectively shielded from the turmoil in the European electricity market in 2022.

It can be seen that miners in the northernmost region of Sweden also enjoy relatively cheap hydroelectric resources, priced at $46 per kilowatt-hour, similar to Norway. Companies like Hive Digital Technologies and Prosperity Digital in Sweden were lucky enough to avoid the energy crisis due to transmission line restrictions.

Norway, Sweden, and Iceland have been mining powerhouses in Europe for many years, but Finland has emerged as a mining newcomer. The country recently launched Europe's largest nuclear reactor, which is expected to generate about 55% of the electricity. This large-scale nuclear investment, coupled with generally lower electricity prices, has reduced Finland's electricity prices by 62% in the past year, to a relatively competitive $47 per megawatt-hour. With ample idle capacity and inexpensive electricity, Finnish regulations do not hinder the development of the mining industry, and Finland may surpass Norway over time to become the largest bitcoin mining country in Europe. Although electricity prices in other European countries have dropped significantly, they are still relatively high compared to better demonstrate their feasibility in the bitcoin mining industry.

5. Europe is unlikely to become a paradise for bitcoin mining, but we still hold hope for it.

It is unlikely that electricity prices in Europe will continue to fall, but they will continue to face power supply issues in the upcoming winter. The price of delivery electricity futures contracts in Germany for 2024 and 2025 is $153 and $161 per megawatt-hour, respectively, which is significantly higher than the current spot price of $101 per kilowatt-hour.

There are serious structural problems in the European energy market, which may lead to sudden increases in electricity prices. For years, the continental Europe has severely underinvested in baseload generation, resulting in a vulnerable electricity market with large price fluctuations.

Even if Europe is fortunate enough to experience an unusually mild winter again, these deep structural cracks in the European energy system will not disappear. Therefore, the high price risk makes it impractical to invest in industrial-scale mining facilities in most European regions unless investors can hedge long-term electricity prices in some way, or the prices miraculously drop.

Figure 22: Forecast of wind and solar energy development in Europe

Nevertheless, miners and energy producers can address various energy issues by operating smaller-scale bitcoin mining operations. For example, against the backdrop of substantial investments in wind and solar power in Europe, the duration of negative electricity prices is becoming longer, leading to greater price volatility. Bitcoin miners can absorb surplus solar and wind energy from the grid. For wind energy, the output period is typically at night and in the morning, while solar energy is available in the early morning.

The Bitcoin mining industry in Europe will continue to be concentrated in power-rich countries such as Norway, Sweden, Finland, and Iceland.

Stock Performance Rebounds for Listed Mining Companies

It is not an exaggeration to say that Q2 2023 is the "resurrection season" for listed mining companies.

The stock prices of listed mining companies suffered a devastating defeat at the end of last year, with a decline of 90-99%. However, in the first half of 2023, these companies' stocks rebounded, with gains of hundreds of percentage points (possibly). The stock rally peaked in July but gradually subsided thereafter.

This report only covers some data points of listed mining companies and provides high-level commentary on them. As these mining companies will release their Q2-2023 10-Q reports in August, the data from Q1 in this report will soon be outdated. Therefore, we will reissue a stock report in August.

Increase in Bitcoin Selling Volume for Listed Mining Companies

In 2023, the increased capacity of listed mining companies has also led to a continuous increase in Bitcoin production, providing support for future business expansion and deployment of next-generation mining equipment. In early 2022, miners have been choosing to hold Bitcoin and refusing to sell. However, after the impact of Terra Luna and FTX on the cryptocurrency market and the influence on mining power prices, the amount of Bitcoin accumulated by listed mining companies has significantly decreased. In a bull market, these companies can operate through a mix of debt and equity financing. But in 2022, their stock values were only valued at a limited bull market value, and financing options dried up as the federal government raised interest rates. Due to the gradual drying up of liquidity from these two funding sources, mining companies were forced to sell Bitcoin to meet their operational needs, with the selling price usually below $30,000 per coin.

The graph below shows that in June of last year, the selling volume of Bitcoin reached its peak when it first dropped to $16,000. Most large-scale selling occurred in heavily indebted mining companies, as they took out significant equipment loans at the highest point of machine prices, resulting in unsustainable debt burdens.

Figure 23: Monthly Bitcoin Mining and Selling Situation for Listed Mining Companies

In May 2023, listed mining companies significantly increased their Bitcoin production. However, after June, the production capacity showed a significant decline. In May, listed mining companies mined 6079 bitcoins; but in June, they only mined 4859 bitcoins. It is clear that the hot summer and higher network difficulty have affected the overall mining efficiency.

Figure 24: Overview of the Bitcoin mining/output ratio

In the first quarter of 2023, Bitcoin mining companies sold more bitcoins on average compared to the second quarter. As shown in the above figure, the largest volume of Bitcoin sales occurred during a period of significant price decline. When Bitcoin reached its bear market low point at the end of 2022, most listed mining companies were selling their entire Bitcoin inventory. With the arrival of spring, mining companies made adjustments to their plans, with the majority starting to sell two-thirds of their Bitcoin inventory each month to fund their business operations and development.

It is expected that mining companies will continue to formulate financial management strategies to avoid making the same mistakes.

Listed Mining Companies' Marginal Production Cost

Figure 25: Bitcoin marginal production cost

We calculated the listed mining companies' marginal production cost by dividing the revenue cost (excluding depreciation expenses) by the number of bitcoins mined during that period. The dataset is based on the latest quarterly financial reports of each company. According to the current mining economics, most listed mining companies are still expected to generate some mining profits in the range of $15,000 to $20,000 per coin.

As a key point in the calculation of marginal production costs, we calculate the current mining capacity of mining companies through their operational costs in the first quarter. For example, after releasing their financial reports for the second quarter, Marathon Digital and Terawulf may have marginal production costs of up to $10,000. The marginal costs of other mining companies may also increase or decrease. We plan to further improve this analysis in future reports.

Listed mining companies expand their computing power

In the first half of 2023, most Bitcoin mining companies have completed the expansion of their computing power. Iris Energy leads the way with a 254% increase in computing power, even though they did not fulfill their equipment loan repayment obligations last year. After the new facility in North Dakota is operational, Marathon Digital's computing capacity has increased by 152%. After the Lake Mariner facility of Terawulf started operating in March this year, its mining capacity increased by 80%. With the operational permit for its data center in Argentina, Bitfarms has increased its mining capacity by 70% using the full power of 50 MW. Greenidge has resolved last year's equipment loan issue and successfully increased its mining capacity by 127%, becoming the "dark horse" of 2023.

It is expected that the computing power of large listed mining companies will continue to grow significantly. Cleanspark deployed a large number of mining facilities in July, increasing its computing capacity from 6.7 EH/s to over 8.5 EH/s. Marathon Digital's Garden City will start operating in August, and coupled with the expansion in North Dakota, its total capacity is expected to increase by 21-23 EH/s. Hut 8 will double its computing power after completing the transaction with US Bitcoin. Finally, Core Scientific is currently undergoing restructuring, and its computing power expansion will have to wait until it emerges from bankruptcy.

Figure 26: Overview of the computing power growth of major listed mining companies from January to July 2023. Do not blindly follow the AI trend.

This industry is no stranger to speculative activities and trend-following, leading to the hype of AI.

With the emergence of ChatGPT, Midjourney, and other AI tools, some miners are using the ability to perform high-performance computing and/or AI tasks to create hype.

High-performance computing is a term used for any data center functionality. However, when miners talk about high-performance computing, they specifically refer to cloud computing, graphics rendering, and similar high-computing tasks. Hut 8 generated $4.5 million in revenue from these services in the first quarter, while HIVE's pilot project brought in $230,000 in revenue for the company.

In fact, the cost of artificial intelligence data centers can be 10 or even 20 times that of Bitcoin mining farms, and they may incur higher operating costs (up to $0.15 per kWh). Computing devices like Nvidia's A100 and H100 GPUs cost tens of thousands of dollars each. In addition, these data centers require more cooling and backup power infrastructure.

Figure 27: Cost of data center per megawatt of power

Riot has estimated its upcoming Corsicana facility to have a power cost of 0.832 million USD per megawatt, with a total capacity of 400 MW and an estimated total cost of 333 million USD. The average cost according to Turner and Townsend's 2022 Data Center Index is only 9.5 million USD per megawatt.

Figure 28: Cost of Riot Corsicana compared to other data centers in North America per megawatt of power

Except for machines that can provide GPU graphics rendering services, no miner would use their computers for Chat-GPT. So, when you see headlines or press releases about AI, don't believe it too much, as it is not as you imagine.

Bitcoin Mining Overview by Country

In this section, we provide an overview of the Bitcoin mining landscape in countries with significant or noteworthy mining activities. As other parts of our report delve deeper into the North American market, rather than providing a high-level overview of mining activities in the United States and Canada, we summarize recent regulatory actions that have impacted the industry.

United States

Overall, Bitcoin, Bitcoin mining, and cryptocurrencies are becoming increasingly mainstream in the United States in 2022 and 2023. This is particularly evident in the Bitcoin mining industry, especially in aspects involving traditional capital markets and industry regulation. There have been some positive developments in both areas in the second quarter of 2023.

For example, the significant ESG pressure accumulated in the previous bull market has dissipated. The culture war has cast a shadow on almost every social/economic/political topic in this country, but currently, no party has implemented policies at the national level that significantly harm the industry.

Nevertheless, the current government and Congress are still making efforts. The industry has successfully resisted some enforcement and legislative attempts aimed at imposing excessive taxes or additional regulatory burdens on Bitcoin mining. In particular, Biden's Digital Asset Market Participant Tax, which would increase the tax burden on Bitcoin miners to 30%, has been put on hold after the continuously rising debt ceiling agreement reached in Congress. On the contrary, the CHIPS Act has triggered a frenzy among states to seek suitable land to accommodate chip manufacturing plants and data centers.

As the DAME tax is currently on hold, there is no report on industry developments in the Bitcoin mining sector at the federal level during the previous quarter's federal-level meetings. However, there are many noteworthy actions at the state level.

1. State Bills

In addition to federal regulations that may impact Bitcoin miners, individual state regulations can also have a significant impact. The separation of powers in the United States ensures that certain state laws supersede federal laws (marijuana being one example, where there may be differences between state and federal laws to an extreme extent).

In 2023, historically conservative states have enacted the so-called "mining rights" wave, which stipulates that as long as miners comply with local and state laws and regulations, they must not be discriminated against. These laws are the first batch of domestic legislation regarding Bitcoin mining and provide clear guidelines for regulation.

Other states have introduced neutral to negative legislation in this quarter and in the past, but most have not been specifically implemented or have failed.

2. Texas

One particularly concerning legislation comes from the mining haven of the United States - Texas.

On April 12th, the Texas Senate passed Bill 1751. A bipartisan group of senators from the Texas Senate Committee on Business and Commerce introduced the bill in March of this year. In addition to other provisions, the bill limits the response level that Bitcoin miners in the state can provide and prohibits them from using certain property tax exemptions applicable to industrial-scale businesses. The main sponsor of the bill often receives campaign funds by investing in peak power plants, which are natural gas power plants that only operate during periods of high demand. Bitcoin mining farms have become competitors to peak power plants due to their ability to provide flexible loads to the grid, and these measures will be a significant blow to the Bitcoin mining industry in Texas.

The bill is awaiting a vote in the House of Representatives, and many critics and miners expect it to be rejected.

3. Arkansas

Arkansas passed legislation to regulate the Bitcoin mining industry as part of its 2023 Arkansas Data Center Bill. This bill has become Bill 851, which not only provides tax exemptions for data centers but also sets guidelines for Bitcoin miners to ensure compliance with the following regulations in the state:

a. State business and tax laws

b. Local and state operating, safety, and noise pollution regulations

c. Any rules or rates for utility services provided by public entities and the nation

d. State and federal employment laws

The reaction to this bill has been mixed, with some counties attempting to oppose it.

4. Mississippi

In February of this year, the Mississippi Senate passed Senate Bill 2603, its own form of "mining rights." Unfortunately, the bill was rejected by the Mississippi House in April.

5. Missouri

In March 2023, both chambers of the Missouri Legislature passed their own "mining rights" bill, Senate Bill 692, but Governor Parson has not approved it yet. The bill will ensure that Bitcoin mining farms receive the same treatment as traditional data centers and prohibit any state or local legislation opposing mining in residential or industrial areas. Additionally, it exempts cryptocurrency from state and local taxes. If Parson approves the bill, it will take effect on August 28th of this year.

6. Montana

Montana passed a "mining rights" bill similar to Arkansas, which allows Bitcoin miners to operate in the state "free from undue discrimination or requirements." Governor Gianforte signed the bill on May 2nd, 2023.

7. Oregon

Oregon lawmakers attempted to advance House Bill 2816 in the previous quarter, which aimed to implement emission targets for Bitcoin mining and data centers. The bill failed to pass committee review in April after Amazon announced plans to build five new data centers in the state.

8. Pennsylvania

Pennsylvania House Bill 1476 was introduced to the state's lower house in June. The bill proposes a temporary suspension of the electricity consumption from bitcoin mining and states that a study will be conducted on the environmental impact of bitcoin mining.

9. Washington State

Last quarter, Washington State took stringent measures to regulate data centers and bitcoin mining facilities. Governor Jay Inslee signed Washington State House Bill 1416 on May 3, 2023. This law establishes regulations for data centers and bitcoin mines.