- Digital coin miners compete in a low-margin industry, where their only variable cost typically is energy.
- They are incentivized to migrate to the world's cheapest sources of power.
- In California and Connecticut, electricity costs 18 to 19 cents per kilowatt hour, more than double that in Texas, Wyoming, Washington, and Kentucky, according to the Global Energy Institute.
2021 has been a great year for bitcoin mining in America as new talent — and equipment — flood the market, but some states are definitely more appealing destinations than others.
The latest data from the Global Energy Institute shows the average price of electricity is lowest in states including Texas and Washington, which certainly jibes with the fact that both states are increasingly hot destinations for minting new digital coins.
While the cost of power isn't everything when deciding where to set up shop, it sure goes a long way.
Miners at scale compete in a low-margin industry, where their only variable cost typically is energy, so they are incentivized to migrate to the world's cheapest sources of power.
The price of power across the U.S. varies.
In California and Connecticut you will pay anywhere from 18 to 19 cents per kilowatt hour, whereas in Texas, Wyoming, Washington, and Kentucky, you will pay less than half that, according to the Global Energy Institute, which puts out an annual electricity price map of the country, using the most recent full year of data available from the U.S. Energy Information Administration.
The institute does warn, however, that "while the energy mix available within a state will play a large role in state electricity prices, energy-limiting policies in some states act to artificially elevate prices, making the price of electricity much higher for consumers and businesses."
Ultimately, what bitcoin miners care about most is finding low-cost sources of electricity.
This is part of why the U.S. proves especially appealing to prospective miners, given the country is home to some of the cheapest sources of energy on the planet, many of which tend to be renewable.
Fred Thiel, CEO of cryptocurrency mining specialist Marathon Digital Holdings, expects most new miners relocating to North America to be powered by renewables, or gas that is offset by renewable energy credits.
"Mining is price sensitive, so as to seek out the lowest-cost power and the lowest-cost power tends to be renewable because if you're burning fossil fuels ... it has extraction, refinement and transport costs," Blockstream CEO Adam Back said.
Washington state is a mecca for hydropowered mining farms, while Texas' share of renewables is growing over time, with 20% of its power coming from wind as of 2019.
Electricity costs, however, aren't everything. Friendly policymakers and sufficient infrastructure are also key factors.
It has a deregulated power grid that lets customers choose between power providers, and crucially, its political leaders are pro-crypto — dream conditions for a miner looking for a kind welcome and cheap energy sources.
"You are going to see a dramatic shift over the next few months," said bitcoin mining engineer Brandon Arvanaghi. "We have governors like Greg Abbott in Texas who are promoting mining. It is going to become a real industry in the United States, which is going to be incredible."
The U.S. has also spent years investing in cryptomining infrastructure, long before it was popular.
When bitcoin crashed in late 2017 and the wider market entered a multiyear cryptocurrency winter, there wasn't much demand for big bitcoin farms. U.S. mining operators saw their opening and jumped at the chance to deploy cheap money to build up the mining ecosystem in the States.
"The large, publicly traded miners were able to raise capital to go make big purchases," said Mike Colyer, CEO of digital currency company Foundry, which helped bring over $300 million of mining equipment into North America.
Companies like North American cryptomining operator Core Scientific kept building hosting space all through the depths of the period so that they had the capacity to plug in new gear, according to Colyer. Core, which has operations in North Dakota, North Carolina, Georgia, and Kentucky, is one of the largest providers of blockchain infrastructure and hosting in North America.