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A number of latest headlines have described a 25% drop in Bitcoin community issue throughout Winter Storm Finn in January. Most attributed the decline to curtailment exercise in Texas. Whereas Texas represents 17% of the worldwide Bitcoin hashrate, ERCOT knowledge reveals that among the curtailment exercise was a mixture of excessive costs and “good grid citizenship.” In ERCOT, and to a lesser extent in different ISOs, costs are the perfect proxy for grid stress. There are different proxies comparable to PRC (Bodily Reactive Capability) however costs are a greater measure for many conditions. For that reason, to forestall value fluctuations and create tougher hedging circumstances, an optimum surroundings is one wherein the worth doesn’t fluctuate wildly. Nonetheless, value fluctuations happen ceaselessly at ERCOT, as evidenced by Winter Storm Elliot in December 2022 (see graph beneath).
Bitcoin miners are economically excellent shoppers of electrical energy. This doesn’t imply that Bitcoin miners will devour electrical energy altruistically, however relatively that margins for Bitcoin miners are uniquely delicate to the worth of electrical energy, comparable to when electrical energy costs exceed their breakeven threshold (the present breakeven threshold). In the event that they go to larger costs, they’re economically incentivized to chop again on consumption. The vary for many miners is between $100 and $200 per MWh). Because of this they are going to devour electrical energy when costs are beneath their par worth and switch off electrical energy when costs are above it. There are some operational and sensible exceptions to this, for instance, if miners have knowledge heart colocation agreements that stipulate or assure uptime.
Texas ought to require Bitcoin miners to stay operational every time electrical energy is ample as a result of their fixed consumption encourages the creation of extra era. And fewer counterintuitively, we naturally need Bitcoin miners to cut back when costs are excessive and the grid is beneath stress.
This brings us to the January 2024 Winter Occasion the week of January fifteenth. The headlines would make you assume that the Texas grid was confused once more and the variety of Bitcoin miners dropped because of this. The reality is far more refined. The common settlement value within the ERCOT wholesale electrical energy market in the course of the worst three days of the storm was $100.76 per MWh, and costs by no means exceeded $600 per MWh. For reference costs are a most of $5,000 per MWh. As wholesale costs point out, the grid weathered the storm effectively with ample reserves all through.
ERCOT did certainly concern a conservation alert, nevertheless it was extra of a precautionary message to electrical energy shoppers who don't monitor the worth of electrical energy each second of each day like Bitcoin miners.
We noticed some financial curtailment, which means slicing electrical energy utilization based mostly on value indicators, from miners for prolonged durations, and a few for brief durations when costs exceeded $200 per MWh. Nonetheless, this exercise was much less pronounced than earlier winter occasions or summer season warmth waves as a result of era reserves have been extra ample all through the grid. Some Bitcoin miners have mined for longer durations as an indication of fine “grid citizenship” and to point out their dedication to a steady grid, however that is hardly quantifiable.
All this proof means that the decline in issue final week requires a extra nuanced rationalization. Most of this was the results of cuts in Texas, however after evaluating ERCOT pricing knowledge, it leads me to imagine that a big portion of the cuts additionally got here from different ISOs in North America. In abstract, anybody with an opinion about Bitcoin mining cuts would do effectively to keep watch over the ERCOT settlement and LMP costs. Knowledge and economics should type the spine of all future analyses.
It is a visitor submit by Lee Bratcher. The opinions expressed are solely their very own and don’t essentially replicate the opinions of BTC Inc. or Bitcoin Journal.