Working Paper: NBER ID: w30923
Authors: Hanna Halaburda; David Yermack
Abstract: This paper studies the operations and financial valuations of 13 cryptocurrency mining companies that are listed on the NASDAQ stock exchange and have facilities in North America. We find that miners using Texas wind power are offline more than other miners, in a more erratic pattern. Yet, despite having relatively low activity levels, these Texas miners are more profitable than those using more stable sources of energy such as hyrdo power or solar power, as reflected in significantly higher enterprise values. Our model shows that miners using sustainable energy may be more profitable than those using conventional sources, despite the shutdowns, as they benefit from extremely low prices when there is oversupply of sustainable energy (e.g., strong winds). The model also shows that it may be beneficial for the electric utility to offer miners compensation for curtailment of their activity when there is undersupply of energy (e.g. lack of wind), which we also observe in our sample. This compensation further increases profits of the miners. We find a negative and significant beta between crypto mining stocks and an index of electric utilities, suggesting that ownership of a crypto mining company might provide a useful channel for risk management in the electric power industry.
Keywords: Bitcoin; Cryptocurrency; Mining; Publicly Traded Companies; Energy Sources
JEL Codes: G23; L23; L94
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Energy sourcing strategies (Q42) | Profitability of cryptocurrency miners (G13) |
| Sustainable energy usage (Q01) | Profitability of cryptocurrency miners (G13) |
| Texas wind power usage (L94) | Operational shutdowns (L94) |
| Operational shutdowns (L94) | Profitability of cryptocurrency miners (G13) |
| Sustainable energy miners (L72) | Compensation for curtailing operations (M52) |
| Crypto mining stocks (L72) | Risk management strategy for electric utilities (L94) |
| Profitability of sustainable energy miners (L72) | Profitability of cryptocurrency miners (G13) |