Marcus Richards
The United States is the biggest cryptocurrency hub by market capitalization and the largest miner of bitcoin. In mid-2021, the United States reported for over 35% of the world’s bitcoin hashrate – a standard for the mining computing power of the Cryptocurrency World network. To mine Bitcoin and other cryptocurrencies, powerful computers are employed to solve complex calculations to earn corresponding tokens as a reward. However, the entire operation is highly energy-intensive.
With the US being the largest miner of bitcoin, the massive amount of energy used up by the industry has caused major concerns. To address this issue, a committee hearing was held on the 20th of January 2022. According to a House representative, the energy consumption of the crypto mining process within the US has become a major concern that needs proper addressing.
On Monday, 24th of January, Fitch Ratings, a global credit rating agency issued a general warning to public power utilities. The agency warned that crypto mining poses a major risk to the power supply if actions are not taken to mitigate crypto mining activities.
Fitch Ratings asserted that the amount of energy needed for crypto mining activities could significantly heighten public utility electricity load. However, the agency also asserted that States like Washington presently have excess generation capacity. Fitch added that the present capacity will adequately meet the energy needs of many crypto operations.
Regardless, the question that remains unanswered is if the excess energy capacity will benefit a massive crypto load. Secondly, the opportunity cost of such an operation also needs to be evaluated to determine if the US is ready for such an operation. Fitch Ratings also claimed that it is very possible that some crypto companies grow to be the biggest consumer in a rural territory. However, crypto mining activities only bring a slight economic advantage in form of ancillary business or jobs to local economies.
According to Fitch, the unregulated and volatile nature of crypto mining and the massive influx of load requests have prompted many to adopt new measures. These new measures were adopted in 2014 to help curb exposure to various crypto mining entities such as evolving rate structures and cryptocurrency load suspension. These measures were adopted to help establish customer concentration limits and also define the departure risk of the volatile industry.
As regards Texas where many crypto mining firms now seem to settle after the crypto ban in China, Fitch Ratings also made an interesting suggestion. The agency suggested that utility companies should draft a new long-term power purchase agreement contract, while also investing in new facilities.
Rather than drafting a new contract, the agency also suggested obtaining power in real-time via market purchases. Dutch believes this will help utility companies handle extra energy load if required. Nevertheless, each of the options is not without financial risks which can be inherited by Texas residents.
Fitch believes these financial risks are a result of the unregulated and volatile nature of crypto mining. This nature allows for crypto mining activities to be price sensitive which may cause firms to shut down once mining becomes uneconomical. Ultimately, it translates to utilities facing non-payment.
However, the agency claims that utilities can limit their risk and protect themselves by limiting the range of crypto mining activities. That’s not all, the agency also suggests that utilities can limit their risk by defining their commitments towards procurement.
Presently, a lot of crypto mining firms are looking for the most cost-effective country to mine cryptocurrencies. So far, many of these companies have identified Washington and Texas as cost-effective states in the US. In fact, Bitfarms, a Canadian mining company recently announced that they are planning to establish a data center in Washington. Stating the reasons why the firm choose Washington, they cited the cost edge given the production rate and electricity available in the state.
On the other hand, Whinestone, which was eventually acquired by Riot Blockchain, has also established itself in Texas. The company plans to take advantage of the deregulated power grid and wind turbines available in Texas
This is not the first time Fitch Ratings will be raising concerns about the use of digital coins such as Bitcoin. The agency has previously warned about the operational risks and volatility linked with using crypto. The warning was issued last August just before El Salvador executed its Bitcoin regulations. The agency added that many local insurance firms will be reluctant to embrace BTC for benefit payments and claims.
