Galaxy Digital Releases Business Bitcoin Mining Costing Model

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Computer, Bank, Blockchain, Coin, Currency

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Are all bitcoins created equal? Not necessarily according to Galaxy Digital. Revealed exclusively to Forbes, the company is today releasing a report, How Much Does It Cost To Mine Bitcoin ?, from its research team.

The answer to this question is very important.

First, as the price of bitcoin rises with interest in space, many people are starting to worry about the industry’s growing carbon footprint. Although the precise figure is disputed due to the difficulty in discerning the exact energy mix between fossil fuels and renewable sources, it still correlates with the amount of electricity needed to unlock new coins as well as the number of miners. of expensive bitcoins operating on the network.

Second, investing in bitcoin mining companies has become an extremely popular and lucrative trend for investors looking to gain exposure to the industry without purchasing the asset directly. Many have outperformed bitcoin so far this year, sometimes significantly. In fact, a large number of investors already own shares of these companies, perhaps unknowingly, due to their inclusion in mutual funds offered by asset managers such as BlackRock, Vanguard and Fidelity.

The performance of these stocks has diverged from that of bitcoin and even popular crypto stocks like Coinbase and MicroStrategy recently due to a number of factors, such as the premium they receive for being easily accessible in markets. traditional stock exchanges with income expectations that flow from foresight and financial support to buy mining equipment still in short supply, much of which is manufactured with delivery times of several months.

It also helps that most of these companies are based in North America, which has benefited greatly from exile from China for almost all of its mining capacity. In fact, the United States is now the world’s largest mining center, which would have been inconceivable in January.

But these reasons simply explain the macro factors. What about other data points such as cost of production? As more bitcoin miners go public and research houses cover more space, analysts are trying to figure out a way to measure the cost of producing bitcoin for each of these companies. There is no universally accepted approach according to Amanda Fabiano, head of mining at Galaxy Digital.

“We realized that when you look at public mining companies, there are really a few metrics that they all report. This is the current hash rate, the expected future capacity, and then their cost to mine a coin. So we dug a bit and saw that everyone differs on how they calculate their cost per part; it’s not very transparent.

Note Galaxy mining operates mining hosting facilities and conducts exclusive bitcoin mining activities.

As a result, Amanda and her team decided to create their own model for calculating the cost of a part, based on data reported by companies in regulatory filings. They use three levels of analysis to break down costs between direct and indirect expenses, while taking depreciation into account.

First, they calculate a marginal cost of production which includes the costs of feeding and housing, excluding the capital expenditure to build a facility or purchase new machinery. Second, they determine the direct cost of production by adding a defined amortization schedule. Of course, the depreciation of the machines will vary depending on the efficiency of use, maintenance, etc., but Galaxy has chosen a period of three years. Third, they make up a total cost of production including the cost of labor.

Bitcoin Production Cost Calculator

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Along with the research report, the company is also making its experimentation model freely available to the wider community via an Excel spreadsheet. Brandon Bailey, mining associate at Galaxy, notes: “With the open source spreadsheet, we really wanted to create it in a way that looks like one of these documents so people know exactly what to look for, go to n ‘ whatever business they wanted, pull up their ranking and plug it right into our spreadsheet and have it automatically calculate these different levels of production cost. We really tried to make it as user friendly as possible so that everyone can take it and do it.

So what can this model tell us? And what is missing? After all, like any valid model, it makes certain key assumptions and excludes certain variables to focus on the most pressing data points. For example, Galaxy’s model does not incorporate elements such as future mining capacity, revenues generated by price appreciation or on-balance sheet loan granting, the relative efficiencies of renewal versus sources of fossil fuels. These can be added by other analysts using the models.

However, it still provides a few key points to remember. For example, miners are starting to use different strategies to grow their business. For example, Marathon hosts most of its minors with third parties and focuses on exploiting its balance sheet to get as much hashrate as possible. Other companies such as Riot are much more vertically integrated as they control access to power supplies and own the buildings used to house mining equipment.

One approach might not be better than another, but Fabiano says, “I would expect the cost of vertically integrated companies to mine a coin to remain constant or decrease over time. If we can start tracking these metrics now, we will be able to see the impact of owning your own infrastructure on electricity costs.

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