Fast Expansion of BitFuFu’s Self-owned Bitcoin Mining Sites

CoinVoiceDec 16, 2024
Fast Expansion of BitFuFu’s Self-owned Bitcoin Mining Sites

I. Introduction

In a strategic move signaling its shift from an asset-light business model to direct infrastructure ownership, BitFuFu Inc. has entered into a definitive agreement to acquire a majority shareholding in an 80-megawatt (MW) Bitcoin mining facility in Ethiopia. This acquisition is a significant milestone in the company’s evolution, as it marks BitFuFu’s first foray into managing its own mining infrastructure, previously relying exclusively on third-party hosting.

BitFuFu’s strategic goal of reducing operational costs through this acquisition is clear: the Ethiopian facility offers an average electricity cost of less than $0.04 per kilowatt-hour, significantly lowering the company’s cost per BTC. The facility has the potential to add 4.6 EH/s in mining capacity if equipped with the latest Bitmain S21-series miners, positioning BitFuFu for continued expansion and efficiency gains.

The acquisition also enhances BitFuFu’s international presence, which has been predominantly based in the United States. By diversifying its global footprint, the company can better mitigate operational risks while taking advantage of Ethiopia’s cost-effective energy and the country’s growing role in the Bitcoin mining industry. Additionally, the acquisition is poised to benefit Ethiopia’s economy through job creation and regional development, aligning with BitFuFu’s long-term vision of delivering value to stakeholders while fostering innovation in digital assets.

II. Strategic Significance of the Acquisition

1. Global Expansion of BitFuFu’s Footprint

The acquisition of the 80 MW Bitcoin mining facility in Ethiopia marks a major step in BitFuFu’s expansion beyond its predominantly U.S.-based infrastructure. By establishing operations in Ethiopia, BitFuFu diversifies its geographic footprint. This strategic diversification is crucial in the volatile global mining market, where factors such as energy regulations, political changes, and environmental policies can disrupt mining activities. The addition of this Ethiopian site gives BitFuFu the flexibility to continue operations and maintain competitive hashrate even if challenges arise in other regions.

This expansion places BitFuFu in a better position to challenge its global competitors by optimizing its geographical reach and operational diversity. With this acquisition, BitFuFufurther solidify its position as a global player in the Bitcoin mining industry.

And (as we’ll see in the next section) the total hashrate will grow to be over 30 Eh/s. As a reference point, MARA is the largest publicly traded Bitcoin miner by hashrate. As of Q3 2024[SW1] , MARA has 40.2 EH/s with a fleet efficiency of 22.7 J/TH.

2. Operational Efficiency and hashrate Growth

The integration of the Ethiopian facility into BitFuFu’s infrastructure is likely to significantly boost its mining capacity. Equipped with Bitmain S21-series miners, the facility could potentially add up to 4.6 Eh/s.

Increase in hashrate improves BitFuFu’s overall mining capacity and also strengthens its competitive position in the global Bitcoin mining market. By equipping the Ethiopian facility with the latest and most efficient machines, BitFuFu also raises the net mining efficiency of its fleet.

For instance, right now the fleet consists of 26.2 Eh/s with an average fleet efficiency of 21.2 J/Th. Adding 4.6 Eh/s of S21-series miners, which have a 17.5 J/Th efficiency, will change the total average efficiency of the fleet from 21.2 J/Th to 20.6 J/Th. As the J/Th number falls, the fleet is getting more efficient, because it means less energy (ie. joules or watts) is required for a single terahash.

BitFuFu’s growth trajectory is clear: by strategically investing in high-capacity, low-cost facilities, the company is setting itself up to gain a greater share of the global hashrate. As more miners come online and the total network difficulty increases, BitFuFu will be better positioned to maintain its profitability by having the infrastructure necessary to mine efficiently at scale.

3. Cost Optimization and Competitiveness

Ethiopia’s low electricity costs, averaging less than $0.04 per kilowatt-hour, provide a significant competitive advantage for BitFuFu. By utilizing the country’s cheap and reliable power supply, BitFuFu can lower its operational costs, particularly the cost per BTC mined. In an industry where electricity costs are a major component of operational expenses, the ability to mine BTC at a lower cost allows BitFuFu to remain competitive, even during market downturns in the BTC price.

This cost advantage will allow BitFuFu to increase its profitability while maintaining mining operations during periods of low Bitcoin prices, unlike competitors with higher operational costs. It is helpful to see the interaction between hashprice, power cost, and average fleet efficiency on a miner’s decision to continue mining.

In general, the hashprice represents the daily dollar revenue generated by running a 1 Th/s machine for a whole day. The hashprice depends on four things: BTC price, Bitcoin block subsidy, Bitcoin transaction fees, and the Bitcoin network difficulty (which is a proxy for the current Bitcoin network hashrate).

Since the hashprice is the revenue received by mining for a day, the miner makes the decision to mine if the hashprice is above his cost for running a 1 Th/s machine for the whole day. This depends on two variables: the efficiency of the machine and the cost of power. This cost effectively sets the breakeven hashprice which the Bitcoin network must provide for the miner to continue mining.

Here is a table which shows some assumptions of power cost (in USD cents per kilowatt-hour) and fleet efficiency (in J/Th), and the corresponding breakeven hashprice, in cents. Note that in real life, large-scale miners have higher costs due to manpower and compliance.

If the Ethiopian site will have 17.5 J/Th machines and $0.04 per kilowatt-hour, the breakeven hashprice for the site would be 1.68 cents (right between 1.632 cents and 1.728 cents); if the Ethiopian site will have 21.5 J/Th machines, the breakeven hashprice for the site would be 2.06 cents (right between 2.016 cents and 2.112 cents).

Recently the Bitcoin hashprice has surpassed 6 cents, meaning the Ethiopian site has a sizable profit margin. However, note that the long run trend of hashprice is to go down over time as network difficulty and hashrate increases.

4. Valuation of the Deal

The acquisition’s financial impact on BitFuFu’s overall valuation is noteworthy. By integrating the Ethiopian facility, BitFuFu expects to generate additional cash flows, which should contribute positively to the company’s equity value. This deal adds tangible asset value to BitFuFu’s balance sheet and opens the door for further growth, as the company now has greater control over its infrastructure and a lower cost base to generate Bitcoin more efficiently.

Moreover, the option value of the acquisition lies in BitFuFu’s ability to further enhance the site’s capacity through potential upgrades and technological improvements. By upgrading mining hardware and optimizing operational processes, the company could unlock additional value from the site, further contributing to long-term shareholder returns.

BitFuFu can also use their cloud mining marketplace to sell hashrate forward and lock in a fixed hashprice for some time. This could reduce the variance of the site’s cash flows.

III. Economic Impact on Ethiopia

1. Ethiopia and Bitcoin Mining Background

Ethiopia has recently emerged as a significant player in Bitcoin mining, fueled by its abundant renewable energy resources. The government has been actively positioning the country as a hub for digital infrastructure and high-performance computing. Notably, in 2022, Ethiopia began allowing Bitcoin mining operations as part of broader efforts to embrace the digital economy, despite maintaining restrictions on cryptocurrency trading​.

The country benefits from cheap, renewable energy, primarily hydroelectric power, which makes Bitcoin mining particularly cost-effective. Over 90% of Ethiopia’s electricity is generated from renewable sources, mainly hydroelectric, with ongoing investments in wind and solar energy​. The Ethiopian Investment Commission estimates 60 GW of potential power generation capacity in Ethiopia, with a planned 19.9 GW to be installed by 2030.

This abundant green energy, combined with low electricity prices—estimated at under $0.04 per kilowatt-hour—has attracted foreign investors, including BitFuFu, making Ethiopia a competitive location for large-scale Bitcoin mining​.

2. Job Creation and Regional Economic Development

The acquisition of the 80 MW Bitcoin mining facility by BitFuFu is expected to create employment opportunities within Ethiopia. As part of the company’s plans, the new facility will employ locals, contributing directly to regional economic development.

The economic impact of this acquisition goes beyond employment. By integrating Bitcoin mining into the broader industrial landscape, Ethiopia is expected to see growth in its technological and energy sectors, which aligns with the government’s industrialization agenda. The mining facility will also enhance regional development, as infrastructure improvements often accompany large-scale projects such as these​. Below is a breakdown of Ethiopia's economy by sector.

Bitcoin mining is positioned to bolster the industrial sector by leveraging Ethiopia’s renewable energy to power data centers and other technology-driven initiatives.

3.Commitment to Renewable Energy

BitFuFu’s focus on environmentally sustainable practices aligns with Ethiopia’s national strategy for renewable energy development. The Ethiopian government has committed to increasing its renewable energy capacity to 19.0 GW by 2030, with ongoing projects such as the Grand Ethiopian Renaissance Dam (GERD) contributing to this effort​. By situating Bitcoin mining operations in Ethiopia, BitFuFu supports the government’s broader goals of using green energy to fuel industrial growth.

In addition to hydroelectric power, Ethiopia is expanding its wind and solar capacity, which will further support the growth of energy-intensive industries such as Bitcoin mining​. The integration of Bitcoin mining with renewable energy sources presents a model for sustainable development, helping Ethiopia achieve its energy and economic goals while mitigating the environmental impact of mining.

IV. Competitive Comparison: BitFuFu vs. MARA

1.Hashrate and Operational Scale

As of Q3 2024, MARA has an energized hashrate of 40.2 Eh/s, while remaining on track to reach a target of 50 EH/s by the end of 2024. ​This was a 5% increase from the previous month’s 35.2 Eh/s. MARA is growing very quickly, and it is also increasing its Bitcoin reserves. As of Q3 2024, MARA holds 26,747 BTC, having also raised money to purchase more BTC. MARA has operations in four continents and about 1.5 GW in data center capacity.

In comparison, BitFuFu, hastotal hashrate under management of 26.2EH and  hosting capacity of over 550 MW as of September 30, 2024.

Where BitFuFu shines operationally is in its fleet efficiency. MARA’s fleet efficiency is 22.7 J/Th as of Q3 2024. This is less efficient than BitFuFu’s current 21.2 J/Th number. As mentioned earlier, adding 17.5 J/Th S21-series miners would lower this number. BitFuFu will likely retain its edge in efficiency, thanks to its smaller size. This, along with cheaper power, makes for better margins.

2.Bitcoin Production and Revenue Potential

The higher hashrate of MARA translates to more BTC production and higher revenues. If MARA hits the 50 Eh/s target by the end of 2024, then it will have about 7% of all global hashrate, using the 732.55 Eh/s number (as of 11 November 2024). Assuming 26 Eh/s, BitFuFu would have just over 3.5% of the total network hashrate, which equates to approximately 50% of MARA’s capacity.

However, this is just mining revenue. MARA is expected to generate additional revenue from other verticals. For example, it is selling 2-phase-immersion-cooling (2PIC) and MARA Firmware for autotuning and overclocking machines. MARA has tens of millions of dollars in 2PIC orders in the pipeline, which is definitely meaningful for total business revenues.

BitFuFu is the biggest miner with a platform for cloud mining. Users can purchase hashrate from BitFuFu to get BTC dropped directly into their wallets. Under certain market conditions, cloud mining could yield more BTC than simply buying BTC. The following table from BitFuFu’s November presentation clearly shows that cloud mining revenues have grown 88.5% YoY and 195,835 new users have been added to the user base (75% YoY growth).

3.Cost of Mining Bitcoin

Cost efficiency is a crucial factor in evaluating competitiveness between BitFuFu and MARA. MARA’s daily cost per petahash is given on their Q3 presentation.

This means MARA expends 3.63 cents per terahash per day. In order for MARA to break even, the network hashprice must be 3.63 cents per terahash per day. MARA has a fleet efficiency of 22.7 J/Th, according to the September HWC conference presentation: [1] 

we can back out a cents per kilowatt-hour cost for MARA using the sensitivity table from earlier. MARA, on average, has an approximate power cost of $0.065 per kilowatt-hour. This is 63% greater than the $0.04 per kilowatt-hour cost that BitFuFu would get at the Ethiopian site.

V. Conclusion

BitFuFu’s acquisition of an 80 MW Bitcoin mining facility in Ethiopia marks a significant step in the company’s strategy to evolve from an asset-light model to direct infrastructure ownership. This acquisition expands BitFuFu’s self-own hosting capacity, and with the potential to add more hashrate, the company strengthens its competitive position in the global Bitcoin mining landscape.

The company is diversifying its global footprint, reducing risks tied to operating solely[ZJ1]  in the U.S., and aligning itself with the Ethiopian government’s emphasis on renewable energy and industrial development. This facility will contribute to Ethiopia’s economic growth through job creation, local infrastructure development, and increased foreign investment, further strengthening Ethiopia’s growing position as a hub for Bitcoin mining.

Source:BitFuFu

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This article is for informational purposes only. It is not offered or intended to be used as investment or other advice.

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