It’s a way for people to dip their toes in the water and participate,” Lee said.Įllen Sheng is a writer and editor with a focus on financial services and fintech. “These miners and broader digital asset companies are a way for investors to gain access to the digital asset opportunity set without opening a Coinbase account. Investing directly in cryptocurrencies isn’t for everyone, given how volatile the market is, but investing in miners and other infrastructure can be another way in.
To get in on the high-potential market, investors can invest in cryptocurrency itself or in the infrastructure that supports it-and crypto mining companies are a crucial part of that infrastructure. The value of all cryptocurrencies passed $1 trillion in early 2021. The market has fluctuated over the course of 2021, as it tends to fluctuate-but even during its downturns, it’s worth multiples more than it was just a couple of years ago. Meanwhile, demand for cryptocurrency and crypto mining shows no sign of subsiding. companies are heavily investing in building out their “hash rates,” or computing power. to step up and fill that gap,” said Lopez, adding that U.S. As always, when there’s change, openings develop for new players. Spring 2021 saw headlines about China’s crackdown on cryptocurrency mining, for example. Global Competition And A Global MarketĬrypto mining can occur anywhere in the world, but the majority, or about 60%, of it currently happens in China, while about 10% of it happens in the U.S. While some companies that mine crypto rely on mining as their core business, others maintain it as a side business. When crypto prices rise, mining companies’ stock prices may rise, similarly to how gold mining companies’ stocks can get more valuable when gold itself does. Lastly, miners are affected by the price of cryptocurrency. When the rainy season ends, miners switch back to coal or whatever else is cheapest.
That’s when miners connect their warehouses of servers to hydroelectric power sources. During China’s rainy season, hydroelectric dams produce excess energy, and energy prices drop.
The low cost of renewable energy is one reason why there is so much crypto mining in China. According to the Cambridge Centre for Alternative Finance, an estimated 76% of Bitcoin miners use some form of renewable energy, while almost 40% of miners’ energy use comes from renewables, he said. Miners are “really incentivized to be on the right side of that trade they want to be using renewable energy, they want to be a part of the ESG solution,” said Lee. Using renewable energy also helps assuage concerns about the environmental impact of Bitcoin and other cryptocurrencies. Increasingly, those sources could be renewable, as renewable energy declines in price. Miners need a tremendous amount of power to run computations, so there’s strong incentive to find the cheapest sources available. The shortage is also pitting crypto miners against gamers-both groups are trying to acquire the same high-powered semiconductor chips.Īnother factor that miners manage is the price of energy. Currently, there’s a global semiconductor shortage that’s driven up prices. “It’s kind of like a futures contract,” said Lee, describing a situation in which miners set up purchase agreements at a certain price on the basis of expectations that prices could surge in three to five years.