With electricity demand in Texas hitting record levels amid critically high temperatures this summer, the state continues to be a prime destination for cryptocurrency mining companies hungry for electricity. Whatever trouble the emerging industry faces in other markets, Texas continues to lure cryptocurrency miners with inexpensive power and few regulatory hurdles.

The total market cap of the world's cryptocurrencies fell from $3 trillion in November 2021 to about $950 billion, causing turmoil among investors and mining developers.

In some European countries where energy costs are high, bitcoin mining is no longer profitable, according to data from S&P Global Commodity Insights' Platts Bitcoin Quarq platform. On July 6, for example, German miners were losing $186 for each MWh of electricity they used to mine cryptocurrencies. In contrast, miners in West Texas made $64 for each MWh used that day, the data shows.

The data demonstrates the fluctuations in profitability for miners and how it can differ from one market to the next, said Amy Gasca, manager of Americas and European Power Pricing for Commodity Insights.

Interest in mining activity in Texas is high. The Electric Reliability Council Of Texas Inc. has 27 GW of cryptocurrency load seeking to connect to the grid over the next four years, the grid operator said in a July 7 email. But the actual figure is likely much lower, said Lee Bratcher, president of the Texas Blockchain Council, an industry trade group. Some miners are double- or triple-counted because they apply for several locations while only planning for one, Bratcher said, and many facilities lack the collateral ERCOT requires to connect them to the grid.

Bratcher estimated Texas' cryptocurrency power load to be about 1.3 GW today, predicting it may grow as high as 5 GW by the end of 2023.

Mining companies use powerful computers housed in sprawling data centers to verify, process and record cryptocurrency transactions. A single bitcoin transaction requires 1,695 kWh of electricity, about what an average U.S. household uses in 58 days, according to Digiconomist, a platform managed by Dutch economist and blockchain expert Alex de Vries.

That same transaction produces 805 kilograms of carbon dioxide, de Vries' research shows.

Texas has used incentives such as generous demand response programs for large industrial and commercial customers to lure cryptocurrency miners to Texas. So far, about 10 mining facilities have connected to the grid, ERCOT said.

For example, Riot Blockchain Inc. operates the Whinstone facility in Rockdale, Texas, in Milam County, east of Austin, Texas, with a total capacity of 750 MW, and the company is planning a facility of up to 1,000 MW in Navarro County, south of Dallas. Riot Blockchain joined ERCOT's Four Coincident Peak program in June and curtailed 8,648 MWh during that month alone, the company said in a July 6 statement.

Curtailing can be lucrative

Like other large energy users, most cryptocurrency miners in Texas in 2022 have heeded calls to curtail operations and help the state conserve energy during periods of high demand, Michael Jewell, a Texas energy attorney and consultant, said in an interview. Mining companies that schedule future energy purchases can avoid losses and make money in the wholesale power market when they sell back whatever power is unused, Jewell said.

"There's a breakeven point where the price of electricity exceeds the value of bitcoin that is being mined at the time," Jewell said. "When you hit that breakpoint, it makes economic sense to curtail."

Others wondered if the state is getting in over its head.

"It's true that [cryptocurrency] miners can be a terrific flexible load for Texas, but I worry that they will not be there to support grid reliability when we need them the most," Alison Silverstein, an independent energy analyst in Austin and former Federal Energy Regulatory Commission staffer, said in an interview. "I worry that the more [cryptocurrency] developers we get, the more they soak up low-cost electricity and electricity in peak hours that the rest of us need."

Market is reeling

Outside the Texas bubble, things look grim for the cryptocurrency industry. With investment losses rising, companies on the financial side have halted trading, reorganizing and consolidating to try to stay afloat.

Bitcoin, the largest cryptocurrency with a 43% market share, has lost more than half of its value since the beginning of 2022.

On July 6, the crypto-asset brokerage firm Voyager Digital Ltd. filed for bankruptcy within days of issuing a notice of default to cryptocurrency hedge fund Three Arrows Capital Pte. Ltd. for failing to make payments on a loan of 15,250 bitcoins and $350 million worth of the stablecoin USDC. The Toronto-based company's 3.5 million customers have been left worrying about losing their investments.

The American-Israeli cryptocurrency lending platform Celsius Network Ltd. paused all withdrawals and transfers June 12 for its 1.7 million customers, citing "extreme conditions." Vauld, a cryptocurrency exchange based in Singapore, followed suit July 4 after panicked customers withdrew nearly $198 million of digital assets over the previous three weeks.

Meanwhile, other efforts are afoot that could rein in the cryptocurrency sector in different ways.

In New York state, lawmakers have imposed a two-year moratorium on any cryptocurrency mining operations that use the energy-intensive "proof of work" process to verify transactions of digital coins, saying the industry is jeopardizing the state's greenhouse gas reduction goals. The state is also going after companies that use fossil fuel plants to mine cryptocurrencies.

And European Union regulators recently hammered out a deal to regulate firms that trade cryptocurrencies — a move that some believe will make it harder for investors to make money.

If so, mining companies in Texas do not yet seem to feel the pain.

Texas weathers cryptocurrency crash

Large cryptocurrency mining companies seem intent on weathering the price crash and, if anything, Texas may only look more attractive to miners than it did a few months ago.

The market crash "does not appear to be slowing anything down at this point, at least not from the bigger guys I work with," Katie Coleman, an Austin energy attorney and power market expert, wrote in an email.

"You can never go wrong betting on Texas jingoism," energy analyst Silverstein said. "Texas leaders always want to be the loudest and the biggest, and so they want to have the most bitcoin."

In late June, Switzerland-based White Rock Management deployed its first U.S.-based bitcoin mining operation in Brazos County, Texas, north of Houston. It is the first of several facilities that the company plans to open in the state using flared natural gas from oil wells.

"The launch of our first U.S. mining operation strengthens our position as an emerging player in the global digital asset mining industry," White Rock Management CEO Andy Long said in a statement.

Like other up-and-coming mining companies tapping into methane and flared natural gas from oil producers, White Rock Management brands itself as an "environmentally responsible" mining operation. While reducing pollution from drilling sites, however, such mining facilities still emit greenhouse gas emissions when they burn natural gas to power their computers.

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