Last week was an exciting and educational week for us here at BitOoda. As always, we do our best to provide whatever services possible to our clients to aid in the profitability and risk management of their business needs. Last week we were able to accomplish this for some of our Mining clients.
In mining, there are inputs, and outputs. The inputs (EXPENSES) are:
- The initial cost of buying the mining equipment, as well as the cost for setting up the mining facility. This is a FIXED COST
- The ongoing energy consumption (electricity) to run these mining rigs as efficiently as possible. This is a FLOATING COST
The outputs (INCOME) for a mining operation is the physical coin that is generated.
To build a successful mining operation, a business plan must include the FIXED SUNK COST, the expected EXPENSES, and the expected INCOME to calculate whether or not the operation will be profitable or not.
There are two variables in this model that can cause potential RISKS for unprofitability for a mining business.
I. ENERGY RISK — this is the floating cost of electricity in the local marketplace of the mining facility. As those prices rise, profits will be mitigated. A worst-case scenario is energy prices rise to be too expensive that the miner becomes unprofitable and must be shut down, and remain idle until energy prices settle back down.
II. MARKET RISK — the coin that is the REWARD for the mining operation is subject to market risk in that the value of the coin mined could drop. As that happens, the profits once again can be mitigated. The worst-case scenario is that the market price for these coins fall so much that it would be unprofitable to mine and therefor the mine would get shut down.
Late last week we were able to help our clients transfer these RISKS so they could have fixed variables within their PNL profile. For one client, we were able to lock in the rate of their hash-power, meaning that they had a FIXED cost for their ENERGY RISK on the input side of their mining operation. Another client, sold their excess hash-power, removing the MARKET RISK from the PNL equation. They will now have a steady output (income) and do not have to rely on the market of a coin to stay at a certain price to remain profitable. Here are the details of the trade:
Buyer purchased 12,500 GPS (graphs/second) / week for ~13 weeks (90 days) @ $1.90 / GPS for a GRIN MINING POOL
We are referring to this trade as a “Hash-Power Weekly Extendable Contract”
This type of contracts can allow someone to get exposure in a specific coin (GRIN in this example) over a known time period WITHOUT having to purchase mining rigs and set up a facially that they need to maintain.
If you would like to learn more about how to trade a contract like this, or are in the market to HEDGE or MITIGATE your input or output risk, please contact us and we can get to work!