Miners have been speculating that energy companies will eventually come in and set up massive Bitcoin mining facilities. They have access to the cheapest power and infrastructure. They have access to big money and some even have some regulatory influence. Everything point towards them being the biggest miners right? Let me explain why that will never happen.
The reason I believe this is simple. The Bitcoin mining total addressable market is too small. Here are the last 13 years of total revenue the miners received donomated in USD. In the best year for mining revenue on record (2021), that number was $16.75b.
Now let's look at the top 10 investor owned utility companies. Keep in mind that these are only the top ten publicly traded electrical energy providers in the US. This doesn't include other MASSIVE energy companies such as ExxonMobil, Chevron, ConocoPhillips, etc. You get the idea.
- NextEra Energy Inc (NEE): TTM revenue: $20.9 billion
- Duke Energy Corporation (DUK): TTM revenue: $28 billion
- The Southern Company (S0): TTM revenue: $28 billion
- Dominion Energy Inc (D): TTM revenue: $16.1 billion
- Sempre (SRE): TTM revenue: $14.8 billion
- American Electric Power Company Inc (AEP): TTM revenue: $18.8 billion
- National Grid plc (NGG): TTM revenue: $20.9 billion
- Exelon Corporation (EXC): TTM revenue: $37.2 billion
- PG&E Corporation (PCG): TTM revenue: $21.5 billion
- Xcel Energy Corporation (XEL): TTM revenue: $15.3 billion
Total revenue of all companies: $221.5 billion.
The total electricity revenue for the entire United States in 2021 was $424.3 billion.
Hopefully these astronomically big numbers tell an easy to understand story, which is that our tiny little Bitcoin mining industry means absolutely nothing to these massive energy companies. We are simply a rounding error.
Big companies need to go after big markets. Even capturing 100% of the mining market (which would defeat the purpose in the first place) would still not make enough of a difference to these companies in terms of their overall revenue.
Now take into the high risk perception of Bitcoin and the unclear regulatory environment around it and there is not enough of a reason for any of these companies to make a move.
Unless Bitcoin mining revenue goes vertical I don't see how big energy companies will get involved with mining to a serious degree. For example let's say NextEra decides to start mining bitcoin with a portion of their renewable wind and solar generation assets. They scale up to become the largest miner in the world and capture 10% of global hashrate.
For this example let's use an average of the two most profitable years of mining which were 2021: $16.75 billion and 2022: $7.7 billion, averages out to $12.2 billion, times 10% equals $1.2 billion in revenue for NextEra.
To a company with $20.9 billion in revenue this only makes up 5.7% of total revenue. A lot of risk for only a small revenue gain. Not to mention the share price risk. If investors think the move is too risky they will sell stock and NextEra has a market cap of $148.3 billion a couple percentage points down is a couple billions whipped out right there alone. It is my assumption that all CEO's, other executives, and board members truly care about is the share price. So the people at the top making the decisions would not take such high risks when even if the risk paid off, would only amount to an extra 5% of yearly revenue.
Incentives drive everything in true Bitcoin ethos fashion, and to me the incentives don't seem to add up.
The closests industry to Bitcoin mining is the traditional data center industry, which technically Bitcoin miners are data centers. I have never heard of any energy companies running traditional data centers (please correct me if I am wrong here). That industry is significantly larger with much less risk than Bitcoin mining.
Amazon Web Services alone is a $62 billion dollar a year business that prints cash for Amazon. If the traditional data center business hasn't caught the eye of energy companies I don't think an industry much smaller like Bitcoin mining will either.
Overall this is a wonderful thing because it means mining will be in the hands of many smaller, diversified, decentralized, startup businesses rather that big giant energy companies.