Summary
The recent drop in bitcoin network difficulty during Winter Storm Finn was not solely due to curtailment activity in Texas. While Texas does represent a significant portion of the global bitcoin hashrate, data from ERCOT (Electric Reliability Council of Texas) shows that curtailment was also influenced by higher prices and grid conditions. Bitcoin miners are economically incentivized to curtail consumption when power prices exceed their breakeven threshold. During the winter storm, the average settlement price in the ERCOT wholesale power market was $100.76 per MWh, indicating that the grid was able to handle the storm with ample reserves. Some bitcoin miners likely curtailed as a gesture of good “grid citizenship,” but it is difficult to quantify. The drop in difficulty was likely influenced by curtailment in other ISOs (Independent System Operators) in North America as well. To understand bitcoin mining curtailment, it is important to monitor ERCOT settlement and LMP (Locational Marginal Price) prices.
Key Points
1. The drop in bitcoin network difficulty during Winter Storm Finn in January was attributed to curtailment activity in Texas. However, ERCOT data shows that some of the curtailment activity was due to higher prices and “good grid citizenship” rather than grid stress. Price volatility is a frequent occurrence in ERCOT.
2. Bitcoin miners are economically incentivized to curtail their electricity consumption when power prices exceed their breakeven threshold. They consume electricity when prices are below their breakeven price and turn off when prices are above it, unless they have data center colocation agreements that guarantee uptime.
3. It is beneficial for bitcoin miners to consume electricity when power is abundant as it incentivizes the buildout of additional generation. On the other hand, it is desirable for miners to curtail their consumption when prices are high and the grid is under stress. The January 2024 winter event in Texas experienced some economic curtailment from miners, but it was less pronounced due to more abundant generation reserves across the grid.