Why Bitcoin is defying rising energy prices

During the current war that Russia is waging against Ukraine, the consequences of Western sanctions against the Kremlin have been repeatedly discussed. As one of the world’s most important energy suppliers, Putin is likely to take advantage of his position of power soon. In addition to rising costs for natural gas, this could also make itself felt in supply bottlenecks.

In the crypto scene, energy policy and electricity prices are particularly important for the mining of proof-of-work-based cryptocurrencies, especially Bitcoin. While Germany is no longer suitable as a mining hotspot due to high energy costs, the Federal Republic is also the most important buyer of Russian natural gas within the European Union (EU).

Figures from the Federal Statistical Office according to the price for Germany’s natural gas imports has almost doubled in the past year. Meanwhile, the volume has increased only slightly. Russia’s war of aggression could make the situation much worse. Industry and consumers would therefore have to contend with disproportionately rising costs.

Bitcoin and the Energy Debate

However, with a current Bitcoin hash rate on a 7-day average of around 195 exahashes per second (EH/S), a feared collapse in computing power due to excessive energy costs has not been confirmed. While the hash rate has been declining since around mid-February, the cumulative computing power on the Bitcoin network only saw a small increase again yesterday, March 2nd.

So the mining business still appears to be intact, despite skyrocketing energy prices. Why the Bitcoin miners continue to maintain the computing power with significant costs for gas and Co. may surprise some. After all, higher electricity costs also result in smaller profits – if this ratio tilts, digital prospecting is no longer worthwhile, see the example of Germany.

“Most of the bitcoin miners and hashrate is overseas, so we’ve seen only a small impact or hashrate correction that can be attributed to rising energy prices in Europe,” said Peter Marggraff, Managing Director of Crypto Supplyopposite BTC-ECHO.

Bitcoin miners in the US are simply not dependent on rising natural gas prices in Europe, according to Marggraff. But does this dependency really only exist overseas? One could also speculate that the mining industry may not rely as heavily on fossil fuels as natural gas, as many critics regularly complain. In any case, an energy mix with a larger proportion of sustainable energy sources would make Bitcoin mining less dependent on Putin’s energy policy.

According to Marggraff, that’s actually the case: “We currently have demonstrably more than 50 percent renewable energy sources that are used for mining and this makes you less dependent on rising energy prices for fossil fuels today and in the long term,” says the expert.

Bitcoin mining in Russia under threat?

But even apart from rising energy prices, there are fears that the war that Putin is waging against Ukraine could have a negative impact on the crypto space and Bitcoin in particular. Because of the mining ban in China, many miners have moved to neighboring Russia. At the same time, as a result of the sanctions that have been and may be imposed on the country, Russia has to switch to alternatives – one of these alternatives is Bitcoin.

Ultimately, according to Marggraff, Putin has committed himself to Bitcoin and wants to “push regulation (also in mining) forward”. According to the expert, the regulation of cryptocurrencies and mining should be implemented promptly, also because Putin has to create an alternative payment system in Russia. “If he doesn’t do that, he would only push the regression further in the future and that can’t be in his interest,” says Marggraff.

For this reason, the Crypto Supply CEO remains “optimistic” about Bitcoin mining in Russia.