​“Rigs are being deployed at scale today.” Can oil and gas companies take over the mining market?

On October 31, bitcoin’s hashrate once again hit an all-time high, surpassing the 320 EH/s mark. While the major players in the industrial mining market are experiencing financial difficulties, there is an opinion that they may be substituted by a replacement from industries of a larger echelon.

Charles Edwards, the founder of Capriole Investments, wrote on Twitter that he attributes the record growth of the first cryptocurrency’s computing power to the entry of “highly efficient government and oil company enterprises” into the industry, stressing that this is happening right now, at a time when BTC is seeing maximum values of its hashrate. “Don’t fight the trend. Rigs are being deployed at scale today,” Edwards writes, adding that he sees no sign of big miners capitulating.

New Bitcoin hash rate world record! 9% higher than the prior all time high set just a few days ago.I have no doubt that we have serious, highly efficient government & oil company enterprises entering the mining game at scale as we speak. pic.twitter.com/YBSswwvK59

— Charles Edwards (@caprioleio) November" class="redactor-linkify-object">https://twitter.com/caprioleio/status/158742504808... 1, 2022

Edwards’ idea provoked an extensive discussion in the comments to his tweet. One of his followers expressed an opinion that with such a trend only miners closely aligned with energy companies would survive in the long run. An account user @Cocopoppyhead added that existing miners would have to share some of their income with power providers if they were to compete with state-owned corporations. Edwards, in a response tweet, called such a situation “the future of bitcoin mining.”

“We’re observing a market redistribution.” How Bitcoin’s hashrate growth affects miners

Mining is becoming the prerogative of large companies, including oil and gas companies, according to Berezka DAO and Weezi co-founder Roman Kaufman. “If we take a closer look at the activities of oil companies, we can see how the production of the primary fuel also yields associated gas, which is almost unused. On the other hand, it is this associated gas that can be used to generate electricity for mining farms,” the expert argues. According to Kaufman, this approach is beneficial to large oil companies because it allows them to reduce costs by generating additional income in cryptocurrency from mining.

Problems of large miners

The administrator of the @BTC_Archive account with 1,1 million followers also agreed with Edwards’ opinion: “I just can’t see any other plausible explanation” for how the hashrate is growing while the biggest of the miners is going bankrupt.

This is apparently about Core Scientific (CORZ), the largest mining company, which announced that it would stop paying its creditors. It is reported that its financial resources may be exhausted by the end of the year. Representatives of Core Scientific noted that if alternative capital raising options prove unsuccessful, the company may be forced to seek bankruptcy protection. Against the backdrop of these statements, the company’s stock plummeted by 70%. At the moment, Core Scientific manages more than 180 000 ASIC devices and its hashrate is 13 EH/s (about 5% of the global BTC hashrate.)

Concurrently, cryptocurrency mining company Argo Blockchain (ARB) announced that its fundraising deal had collapsed, causing its stock to plummet by 52,72% in 24 hours. In its announcement, Argo Blockchain mentions an agreement with a strategic investor for about 24 million British pounds sterling (~$277 million). This agreement is unlikely to be implemented at the moment, and the company intends to look for other sources of funding.

Argo Blockchain also took steps to further increase liquidity and preserve funds. The company sold 3843 Bitmain S19J devices worth $5,6 million. Argo Blockchain’s total mining farms capacity currently remains at 2,5 EH/s.

Experts interviewed by GetBlock Magazine agree that those miners, whose production costs are higher than the global average, may already consider ceasing operations. In such a situation, large miners with sufficient funds at their disposal to maintain operations even in conditions of low prices, as well as better access to electricity, will try to capture market share.

In search of cost optimization, some companies are moving equipment to other states, including Russia and Kazakhstan, whose government is increasingly showing loyalty to the cryptocurrency mining industry.