The Impact of Bitcoin Mining on ERCOT: Analyzing Data and Economics

Bitcoin Network Difficulty Drops During Winter Storm Finn in Texas

Recent headlines have highlighted a significant 25% drop in bitcoin network difficulty during Winter Storm Finn in January. Many attributed this drop to curtailment activity in Texas, which represents 17% of the global bitcoin hashrate. However, data from the Electric Reliability Council of Texas (ERCOT) suggests that the curtailment activity was not solely due to the storm but also a combination of higher prices and “good grid citizenship.”

In ERCOT, and to a lesser extent in other Independent System Operators (ISOs), prices serve as the best proxy for grid stress. While there are other indicators such as physical responsive capability (PRC), prices are generally considered a better measure for most situations. An optimal environment is one in which the price does not swing wildly up and down, as this helps prevent price volatility and creates more challenging grid conditions.

ERCOT has experienced price volatility in the past, as seen during Winter Storm Elliot in December 2022. Bitcoin miners, being economically driven consumers of electricity, are uniquely sensitive to power prices. They are incentivized to curtail consumption when power prices exceed their breakeven threshold, which currently ranges between $100 and $200 per MWh (megawatt-hour). This means they consume electricity when prices are below their breakeven price and turn off when prices are above it.

Texans should ideally want bitcoin miners to be consuming electricity whenever power is abundant, as their consistent consumption incentivizes the expansion of additional generation capacity. Conversely, it is also desirable for bitcoin miners to curtail their consumption when prices are high and the grid is under stress.

Now, let’s turn to the winter event in January 2024, specifically during the week of January 15th. Headlines may have suggested that the Texas grid was stressed again and that bitcoin miners curtailed their operations as a result. However, the reality is more nuanced. The average settlement price in the ERCOT wholesale power market during the worst three days of the storm was $100.76 per MWh, and prices never exceeded $600 per MWh. It is worth noting that prices can reach a maximum of $5,000 per MWh.

Based on wholesale prices, it is evident that the grid weathered the storm quite well, with ample reserves throughout. While ERCOT did issue a conservation alert, it was more of a precautionary message for power consumers who do not monitor the power price as closely as bitcoin miners do.

There was some economic curtailment from miners during extended periods when prices exceeded $200 per MWh, but this activity was less pronounced compared to previous winter events or summer heat waves. This can be attributed to the abundance of generation reserves across the grid. Some bitcoin miners may have curtailed their operations for longer periods as a gesture of good “grid citizenship” and to demonstrate their commitment to a stable grid, but quantifying this is challenging.

The evidence suggests that the difficulty drop in the bitcoin network last week requires a more nuanced explanation. While a significant portion of the curtailment came from Texas, an evaluation of ERCOT pricing data indicates that a material portion of the curtailment also originated from other ISOs in North America.

In conclusion, anyone with an opinion about bitcoin mining curtailment should closely monitor ERCOT settlement and Locational Marginal Pricing (LMP) prices. These data points, along with economic considerations, should form the foundation of all future analyses.