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How problems with the Texas power grid are disrupting bitcoin mining

Argo Blockchain CEO Peter Wall joins Yahoo Finance Live to talk about how Texas power grid disruptions are impacting the bitcoin mining ecosystem and where the most active mining operations are located.

Video transcript

[MUSIC PLAYING]

RACHELLE AKUFFO: Bitcoin miners in Texas are getting paid not to mine to ease pressure on the electric grid amid a heat wave there. For a closer look at what's happening, we have Peter Wall, CEO of Argo Blockchain. Thank you for joining us today. So obviously, this is an interesting phenomenon. We saw that ERCOT, which obviously takes care of brokering this deal, having some of these industries pare back on their energy use during some of this high demand. What is this doing for Bitcoin mining, having this heat wave right now?

PETER WALL: Yeah, well, it's interesting, Rachelle, because Bitcoin mining is actually quite symbiotic with power generation in general. So when you think about mining in Texas and when you think about power in Texas, there's a certain amount of energy that's created on a daily basis. And what miners can do is they can act as a flexible load, as kind of a buffer, for when there's times of high demand, like there was yesterday. It was an extremely hot day. There's a heat wave going on in Texas.

So ERCOT puts out a call, not just to miners, but for folks in general, to conserve energy, and miners shut down, gave that power back to the grid, and therefore there's enough power for people to make sure that people can keep their homes cool. So we have a large facility in West Texas. We did that yesterday. It's something that is kind of understood both from a grid level, like you mentioned, ERCOT, they asked miners to do that. They asked any large consumers to do that.

But also, as a miner, you understand that that's part of the deal, that when there's power that's needed for other reasons, you can give that power back to the grid.

DAVE BRIGGS: But it's not just altruistic. You're getting paid to shut down the power, right?

PETER WALL: Well, there's two paths, Dave. So yes, on the one hand, it is altruistic. Yesterday, for instance, most miners didn't need to shut down, but they did because the demand, the call went out. But then, on the other hand, there is what they call these demand response programs, these ancillary services where miners can sign up and then essentially be that safety valve and, yes, be economically incentivized to do that. Now, Texas isn't the only place where this happens. We've been mining in Quebec for many years.

And in Quebec, when it's cold in the winter, when there's power that's needed to heat homes, we shut down and give power back. But Texas is different because, as you said, there's economic incentives some of the time for miners to give power back. So that's why there are so many miners that are moving to Texas, because there is these programs that you can participate in, and also because there's an enormous amount of renewable power. Texas is the number one producer of wind in the United States. It soon will be the number one producer of solar.

Not a lot of people realize that. And when you have a lot of renewables, you don't have a straight generation graph. You have a more variable graph. And again, miners can act as a buffer to make sure that generation is matching supply-- sorry-- that generation is matching demand, or load, as they call it in the world of power.

RACHELLE AKUFFO: And we pulled up a map there showing some of the most attractive states when it comes to crypto mining. Are there any, perhaps, options in terms of other states that you would look at, perhaps, say, neighboring Oklahoma, where they have perhaps a better grid or perhaps less pressure on the grid that would be better suited to handle the demand without being disrupted?

PETER WALL: Well, there's miners all across North America right now. I think, Rachelle, that you've seen an enormous amount of movement since China shut down mining back in the middle of last year. You've seen an enormous amount of hashrate moving to North America. We mine, as I mentioned, in Quebec. There's people that are mining across Canada. And then, throughout the United States, Washington is a big place. Yes, there's miners setting up in Oklahoma, Kentucky, North Carolina, North Dakota. And a lot of them are using grid power. Some of them are using power behind the meter.

But again, in pretty much all of these places, there's a recognition that miners can play a balancing load, a balancing role for the grid, and can give power back to the grid when it's needed and essentially stabilize the grid. So if you talk to the head of ERCOT, Brad Jones, and you say, what role do you think miners can play? He thinks miners can play an important role in stabilizing the grid. There's research that came out recently from the University of Texas where they've said the same thing.

So as people understand more about power use and power generation, I think they're starting to see the role that miners can play to be this kind of load balancer for grids across North America.

DAVE BRIGGS: One estimate has Texas controlling 20% of the crypto mining computer potential by the end of next year, which is an enormous number if, in fact, that is true. Given the massive fall of the entire crypto market, though, is it time to start asking yourself is it worth this type of power expenditure given where prices are headed?

PETER WALL: Listen, we're bullish long-term, Dave. We wouldn't be in this industry if we didn't believe in Bitcoin and believe that in the long term it's going to continue to appreciate as an asset and continue to outperform most other assets like it's done in the last 10 years. So we believe that, while there's going to be short-term downturns like we've had now, it's still profitable. Even today, it's profitable for miners. Most miners well north of $10,000 are making a profit depending, obviously, on your cost of power.

So we believe, yeah, it's absolutely worth it to continue to build out infrastructure and to use power along these lines. But that being said, the growth of hashrate was projected to be at a certain level at the end of this year, and given the price of Bitcoin, it certainly has slowed down and will not probably be as much hashrate that has come online-- there will not be as much hashrate that has come online that would have been projected by the end of this year.

RACHELLE AKUFFO: And so, to that point, that obviously Bitcoin mines' only profitable if those energy costs are below the value of the Bitcoin that is being gained from producing them, then, in terms of where you plan to expand into, what you see as most attractive, and in terms of also people coming into the Bitcoin mining space, what are you seeing there?

PETER WALL: Well, it's hard to get into the Bitcoin mining space, Rachelle. It's very capital intensive. It requires a certain amount of technological know-how. So we haven't seen any big technology companies making the jump. It's pretty much still been folks like ourselves that have built our companies from the ground up over the last four or five years. We started in a 2,000-square-foot facility in Quebec. We've now opened a 126,000-square-foot facility in Texas.

We went from using 0.2 megawatts to now using 200 megawatts in Texas-- or will be, hopefully, by the end of this year. So it is growing, but it's mostly growing organically. You don't see a lot of top-down development. You see a lot of bottom-up growth. And then, in terms of hashrate development in different parts of the world, it's pretty much focused on North America.

A little bit of action taking place in South America. You've obviously-- everything from China at least officially has left. You see some growth in Southeast Asia. A little-- Russia's now a bit tricky. Kazakhstan's tricky. So when you're a miner and you're looking for somewhere to set up, North America continues to be the best jurisdiction to get started.

RACHELLE AKUFFO: All right. A big thank you there. Peter Wall, Argo Blockchain's CEO. Thank you so much.