Cryptocurrency investors should keep track of various costs associated with Bitcoin mining, Tyler Page, CEO of Bitcoin mining company Cipher Mining (CIFR), said in a Wednesday interview with Yahoo Finance Live.
“2022 for the entire industry of Bitcoin mining, I think is going to really be about execution,” said Page.
Cipher Mining, which says it's dedicated to “providing and securing the vital infrastructure necessary for the Bitcoin network to flourish into the future,” made crypto news headlines this past October after purchasing several dozens of thousands of next-generation bitcoin mining hardware fromBitfury, a Bitcoin Blockchain infrastructure provider. The group is also backed by larger investors like Fidelity Management and Research and Counterpoint Group.
Opportunities are boundless this year, but costs also will present a significant challenge to mining operations looking to capitalize, Page said.
“The big differentiator, and I think what the investing world needs to start to appreciate to differentiate among these miners, is what kind of cost discipline do they have on the main inputs?,” he said. “[The main inputs including] cost of power, which is the biggest OpEx cost input, and the cost that you pay for compute power or for mining rigs themselves, which is the biggest CapEX expenditure.”
Mining operations attempt to generate Bitcoin at a rate lower than market prices. It’s crucial, Page said, to account for costs generally overlooked by investors to calculate a more accurate picture.
“The story of a miner is that you're effectively manufacturing Bitcoin for a much lower price than the market price like any commodities E&P type business,” he noted. “So in addition to the variable costs, both the operating cost for operating your facilities and paying for power or paying for hosting … you also need to think about depreciation and amortization of the capital expenditure you've had.”
Bitcoin miners had an eventful year, to say the least, in 2021. China enacted a series of crackdowns on mining operations throughout the year, criminalizing it throughout the country by the year’s end. Even with the government restrictions,experts estimatethat as much as 20% of the world’s mining is done in China (down from peaks of 65%) through underground mining.
Mining in the U.S. has increased significantly over the past few years. In October, the U.S. overtook China as the country with the highest amount of crypto miners in the world. Research suggests that approximately one-third of bitcoin’s hash rate is in the U.S., representing a 400% increase from last year.