North America’s Rise as a Bitcoin Mining Superpower
Trends, Challenges, and Opportunities in the New Center of Hashrate Power
This is part of the Energy Strategy and Planning for North American Bitcoin Miners
The world of Bitcoin mining has undergone a significant transformation in recent years, with North America emerging as the new center of hashrate power. China, which once supplied 75% of the global hashrate, has seen a decline in its market share due to a crackdown by its government. As a result, miners have migrated to North America, with the United States and Canada being the preferred locations due to their stability and affordable electricity prices. This shift has prompted a wave of mining site development in the region, with Texas emerging as the primary mining state. However, concerns over network resilience and regulatory scrutiny in certain states remain. In this article, we delve into the data and explore the trends shaping the North American Bitcoin mining landscape.
North America — Hashrate Center of the World
Historically, China has been the undisputed epicenter for Bitcoin mining. At its peak, the country was supplying nearly 75% of the global hashrate to the Bitcoin network. However, the recent crackdown by the Chinese government has caused a significant shift in the worldwide dynamic of the hashrate race, a shift that moved a majority of miners to North America.
We analyzed data from the University of Cambridge covering the network hashrate from 2019 to January 2022. During this period, China’s market share declined from 75.5% in September 2019 to 51.6% in February 2021 before the China ban intensified in June 2021. For the present date, Luxor estimates that the country’s share is circa 20%. However, our suspicion is there could be “more than meets the eye” as it pertains to China and Bitcoin mining. Chinese miners will continue to operate at some capacity.
As a result of the Chinese ban on Bitcoin mining, there was a large migration toward the United States and Kazakhstan; the global distribution of miners gradually became more diversified outside of China. Central Asian countries were unable to soak up the massive influx of miners coming from China. Since the end of 2021, Kazak miners are facing tougher restrictions, despite legislators enacting a more transparent regulatory framework. These tighter restrictions exerted pressure on industry stalwarts, ultimately compelling them to pursue the Asian exodus toward North and South America.
As a result of these changes, in early 2023 Luxor estimated the United States market share at 40% of the global network. Similarly, US public miners are estimated to operate 3.6 GW domestically. For context, Canadian mining capacity sits at approximately 0.7 GW. Next up, we turn our attention to the state and provincial regional mining capacity, in MWs, for both countries. The visuals below are meant to show North American Mining distribution before we dive into the U.S. market specifics.
At first glance, both visuals display a concentration pattern pertaining to respective states and provinces. Canada is a large country in terms of geography, but smaller in terms of hashrate. The hydro-rich provinces Quebec and British Columbia account for 43.7% and 31.1%, respectively. As for the United States, Texas clearly takes the lead as the most hashrate-dense region. The wave of mining site development Texas received over the past two years will likely strengthen Texas as the primary mining state for many years to come. In the meantime, Georgia and New York lag behind their Texan counterpart with only 9.5% (GA) and 8.4% (NY) of the total US mining share.
The total hashrate of the United States will likely continue to increase. Although the country’s share of the mining market relies on a multitude of dynamics, namely the regulatory environment and energy economics, we cannot predict how growth in other countries will affect the US market. Still, a scenario with the US being responsible for a large portion of global hashrate clearly exists, as more states are incentivizing miners to harness the grid. Also, US miners are incentivized by the continued development of renewable assets in remote areas. Bitcoin miners are the buyers of last resort and give these renewable projects economic viability.
At the other end of the spectrum, we will observe in the second part of the report that some states are more reluctant to welcome these energy-intensive businesses.
The United States has become the preferred location for miners. In search of stability and affordable electricity prices, they deploy tremendous amounts of capital in the country. In the last few years, benefiting from favorable economics, miners started to tap into international capital markets to increase leverage. While not all leverage is good leverage, this shift increased the transparency of the large miners’ balance sheets and treasury management strategies. Based on this accrued visibility we can provide a map of the listed US miners.
Mapping of Publicly Listed Miners in the United States
Before we dive into the geography patterns exposed by the map, it’s worth starting with a preliminary review of the features shared. The data exhibits the geolocation of operating and non-operating mining sites in early 2023, and whether they are bound to be energized.
It’s uncertain what type of hashrate increase or decrease we will see this year. Investments in mining facilities have been plentiful in the last 36 months; however, most have been geographically concentrated. As it stands today in the United States, 60 facilities are operated by publicly listed Bitcoin miners.
Mapping of mining sites in the US and CA
At first glance, it appears that Texas, New York, and Georgia are the most concentrated states. With 17 sites of publicly listed miners, Texas has more operational hashrate than any other state. Texas also has a large amount of stranded renewable power, free market electricity prices, and favorable legislation making it a highly attractive location for Bitcoin companies. However, as we will see in a later section this concentration of hashrate, combined with the greater volatility of Texas weather, raises questions on the network resilience that merits deeper attention.
On the other hand, New York, a much tougher regulatory market, has eight sites, ranking it second on a state-by-state basis. The number of facilities might come as a surprise when you consider how lawmakers have scrutinized Bitcoin miners in the region. With the recent two-year moratorium focused on restricting new activity on fossil fuel-powered facilities, nobody knows what could be next on the chopping block in the broader Bitcoin mining industry.
California and Florida have no mining capacity because of their elevated electricity rates. Washington, Oregon, Tennessee, and many other low-cost markets could be under-represented on the below map. The two main reasons: the map does not cover private miners which are a larger group, and second high local taxes combined with adverse political/regulatory frameworks serve as entry barriers for miners with an appetite for growth.
Mapping Megawatt Capacity
The previous mining map only offers a crude measure of how the public market is structured, but it is an incomplete tool for measuring the concentration ratio in a given place. An approach to gauge the relative abundance of capital deployed into a state is to track the deployed mining capacity. In Early 2023, we estimate that 3,610 MW are operating in the country.
Overall, the positive correlation assuming that the most endowed states are embracing the greatest power capacity is somewhat verified. However, the map points to an imbalance between Texas and others.
“Bitcoin mining is helping balance our grid and is driving more renewables into our system”
- Brad Jones, former CEO ERCOT, Texas Electric Grid
Texas is at the forefront of Bitcoin mining. It encompasses a daunting 54.35% of the total megawatts used by public miners in the United States. When looking at the top ten biggest mining sites, six are located in Texas. Namely, Riot at Rockdale (380 MW) and Hut 8 Corp at King Mountain (220 MW) are currently running the largest facilities in the US. Although Texas infrastructure is not concentrated in close proximity, the over-concentration of Texan Bitcoin miners with 1,962 MW should question a potential point of failure supported by the network alongside the weather risk. One namely example of such weather-inflicted risks is Riot which still deals with damages to its ASIC fleet from the last winter storm. Mobile containers have been impacted by the extreme weather damaging approximately 2.5 EH/s of their hashrate capacity.
At the second rank, Georgia (343 MW) has long been a place with cheap electricity prices. Conversely to New York (302 MW), where the miners cope with more volatile and higher power prices in addition to the historically uncertain regulatory and political environment.
South Carolina, Kentucky, and Pennsylvania are notable places to mine, together they account for 588 MW representing 16.3% of the US mining market. As we will witness in the next map, North Dakota power capacity could surge in a couple of months as Marathon would be able to energize its miners at the Jamestown and Ellendale facilities.
Where Are the Miners Going?
Bitcoin mining requires a long-term vision, particularly for the actors that are willing to pour vast amounts of capital into their own infrastructure. Owning their facility allows miners to secure energy and enhance margins as they benefit from economies of scale and reduce average total cost. However, when incorporating capital investment it’s an onerous business in the short term compared to the popular hosting model.
But probably gone are the days of hosting supremacy more companies are building out their own farms.
Building a sustainable Bitcoin mining business requires prudent power purchase strategies, and the ability to adapt to legal and environmental challenges. Only well-capitalized miners are able to manage these risks. Flushed with fresh capital, some seized the opportunity to construct their own sites next to renewables while strengthening the electricity grids, especially in Texas. One example is the joint venture between Cipher Mining and WindHQ at their Alborz site in West Texas.
Given the progressive availability of renewable energy combined with the expansion of facilities at scale, the region has received applications to reach 4 GW by 2024, initially set at 5 GW before the surge in energy prices. However, if Texas is more than doubling its capacity, the state’s share would not increase relative to others, but rather maintain its current share at 53.6%, which emphasizes the growth potential of the other states. In fact, we anticipate New York will soar by 261%, North Dakota will shoot up by 282%, and Pennsylvania to quadruple.
Starting with the state of New York, on the surface, one would think that the ongoing capacity increase might slow down or even decrease in the future, but the devil is in the detail. Currently, six data centers are operating at full capacity, two offer the potential to increase capacity in the future and one last has not been energized yet. Let’s focus on these three sites to explain the estimated 495 MW increase..
In contrast with the recent moratorium restricting any new non-renewable activity, in February, Digihost announced the acquisition of a gas-fired power plant in North Tonawanda (already contracted before the moratorium). This farm will consume 60 MW once fully energized. In addition, Digihost announced adding another 25 MW to its Buffalo data center. The biggest increase in the state of New York, however, is expected to occur at one of Terawulf’s data centers, which have the capacity to expand with another 410 MW of hydropower (actually fueled by 9% of coal and 91% of hydro).
Concerning North Dakota, the rise is driven by Marathon and miners in the private sector. After leaving the Hardin facility in Montana powered by coal, MARA struggled to find rack space. After having the ASICs stored in boxes for months, they eventually found a new home for them.
In Q3 2022, MARA contracted Applied Digital for a five-year deal to expand their mining activity in two sites, the first at Ellendale and another at Jamestown.
While the construction of Ellendale just started in Q3 2022 with a potential of 180 MW. The Jamestown facility will energize 33 MW in Q1 2023. Aggregated Marathon has the room to expand to a total capacity 247 MW in the coming years.
Lastly, we expect Pennsylvania’s Bitcoin mining share to climb from 5.0% to 9.8%, with a total capacity increase of 545 MW. Mawson and TeraWulf have recently secured a large amount of power in the state. TeraWulf is connecting to a nuclear power plant currently using 50 MW with another 250 MW available for expansion. Mawson has just broken ground on a 120 MW facility and expects to energize their first machines in early Q2 2023. Hence, we expect the total Bitcoin mining capacity to increase from the current 55 MW to 186 MW in the future.
The Importance of Diversification
While the global Bitcoin mining sector should consolidate overall in 2023, there are still outstanding investments from the 2022 bull market coming online this year. Our expectation is that Texas miners and ERCOT will continue to negotiate and find new avenues for collaboration. North Dakota will ensure the continuity of this dynamic, in addition to states like Montana which recently passed the “Right to Mine Bill”. In the North East/Mid-Atlantic, we expect the hashrate to grow. Unfortunately, it is “buyer beware” as the New York regulatory environment remains risky.
Did the New York case teach the miners a lesson? If we should retain one, it is the following: Don’t put all your eggs in one basket. Miners might diversify their risk by mining in other areas or even countries as Bitfarms does in Paraguay and Argentina.
Diversifying locations not only addresses the regulatory sword but also contributes to mitigating the electricity price exposure of a given state or nation. In summary, geographic diversification will enhance network resilience.