How to Increase Bitcoin Mining Production with Hashrate Forwards and Futures

A key objective for many Bitcoin mining companies is increasing total BTC production. Until recently, that meant sourcing data center sites, hiring operators, building operations, negotiating power agreements, and purchasing ASICs. But with growing liquidity in Luxor’s OTC Hashrate Forwards markets and more recently, Hashrate Futures market, large public Bitcoin miners and small-medium private miners can use forwards and futures to increase Bitcoin mining production over a short or long time period. 

Here are two ways for Bitcoin mining companies of all sizes to increase their total production using hashrate forwards and futures.

Way #1: Buy Hashrate Forwards or Futures

The total Bitcoin production of a mining company is determined by the amount of hashrate they deliver and the BTC hashprice the market pays for the hashrate. To deliver hashrate a mining company will typically make infrastructure and hardware investments and pay electricity, employee, and other corporate expenses.

But with forwards or futures contracts, miners can contract that hashrate and generate the same total BTC production. This means Bitcoin mining companies now have the option of delivering hashrate to the Bitcoin network or a mining pool from their operations or contracting hashrate from the futures or forwards market to meet short or long-term BTC production targets.

1. Standard Mining Operation

BTC production:  The result of the amount of Hashrate delivered multiplied by variable hashprice

Production Costs: Datacenter sites, operators, costs, ASICs, SG&A, etc

VERSUS

2. Buying Hashrate using Luxor Hashrate Forwards

BTC production:  The result of the amount of Hashrate purchased multiplied by fixed (or variable) hashprice 

Production Costs: Purchase price of forward contract 

In the short-term, buying forwards and futures is a particularly effective way to respond to unexpected downtime events. For example, ASIC delivery delays, electrical issues, high power prices, infrastructure delays and a myriad of other reasons can obstruct mining operations while capital for funding opex sits idle. With hashrate futures and forwards, miners can immediately deploy that capital to generate BTC. 

Luxor can help miners source hashrate on a listed exchange through futures contracts or via OTC forward contracts with seamless delivery to Luxor Mining Pool accounts. Payment is accepted in fiat, stablecoin or Bitcoin.

To illustrate, suppose a miner has infrastructure and ASICs to support 100 MW. With a fleet efficiency of ~28.5 j/TH, they expect to produce 3,500 PH/s and mine 84 BTC per month. However, energy issues may cause significant downtime, leading to only delivering 2,500 PH/s and mining only 60 BTC. To mitigate the downtime, the miner may purchase 1,500 PH/s from Luxor’s Hashrate Forward and generate the additional 24 BTC from the contracted hashrate, for total production of 84 BTC, despite the energy issues and downtime.

Way #2: Sell Hashrate Forward for Upfront Payment to Finance ASICs

Over a longer time horizon, mining companies can increase BTC production by selling the Luxor Deliverable Hashrate Forward. This would allow them to receive upfront payment and use the proceeds to purchase ASICs without dipping into retained earnings or diluting shareholders.

Similar to traditional commodity sectors like agriculture and energy, where deliverable forwards are essential financial tools that commodity producers use to fund investments and mitigate market volatility, Luxor’s Deliverable Hashrate Forwards enable Bitcoin miners to sell their future production for immediate capital that they can use to expand operations.

With fixed hashrate or fixed BTC repayment options directly to Luxor pool accounts, we have seen tremendous growth in adoption. Over the same time period, we have seen the cost of upfront capital fall from 17-20% to 10-13%.

Hashrate Futures, and Hashrate Forwards Can Help Increase Short, Medium or Long Term Bitcoin Mining Production

If your company is looking to increase BTC production in the short, medium, or long term, please reach out to the Luxor team. We have the tools and markets to help meet your production targets!