Tether Commits $500 M to Bitcoin Mining
[TL; DR]
Tether intends to invest in Bitcoin mining, aiming at attaining at least 1% of the mining quarter.
The stablecoin issuer (Tether) will establish its mining facilities in Uruguay, Paraguay and El Salvador.
Increase in mining difficulty and falling Bitcoin price are some key challenges Tether may face after the bitcoin halving.
Introduction
The new trend in the crypto space relates to diversification in product offering and innovation in business strategy. Crypto firms that have diverse business portfolios, high quality products and offer competitive customer care services perform well in the sector.
We have seen companies like PayPal, Grayscale and BlackRock introducing crypto products like derivatives. They harness advantages of the blockchain and enter new business territories.
Tether Labs, the provider of Tether USD (USDT), is an example of a crypto firm that is diversifying its products. This post covers Tether’s planned investment of $500 million in bitcoin mining. We will also look at some key challenges the company will face after the 2024 bitcoin halving event.
Tether’s Bitcoin Mining Strategy
Tether has established a roadmap to become one of the leading bitcoin mining firms as it targets to invest more than $500 million in the sector. In an interview with Bloomberg, Paolo Ardoino, Tether CEO, said that in the next 6 months the company will construct its own mining infrastructure as well as acquiring some existing ones.
Ardoino said in, “We are committed to being part of the Bitcoin mining eco,” he said. “When it comes to the expansions, building new substations and new sites, we are taking them extremely seriously.”
Tether’s aim is to attain 1% of the bitcoin hashrate, starting with 120 MW by the end of the year and 450 MW in 2025. Already, the company has set aside $150 million for direct investment in the mining sector. If Tether achieves its BTC mining target it will become one of the top 20 bitcoin miners in the world.
One of Tether’s infrastructural strategies is to construct mining facilities in large movable containers. As such, it will be very easy to relocate the containers to countries where there is cheap electricity
Tether’s Related Crypto Investments
As we know, Tether’s current main product is the USDT stablecoin, pegged at a rate of 1.1 with the United States dollar. As a result, it generates much of its revenue from its multi-billion reserve assets, includingUS Treasury bills. The reserves are important in the management of USDT as they ensure that the Tether price is stable.
It is important to note that Tether has already made several crypto investments related to bitcoin mining. For instance, in June it invested in Volcano Energy, a Salvadoran BTC mining venture.
Again, In September it secured a 20% share in Northern Data and acquired Nvidia’s AI-oriented GPUs in the process. In a related move, Tether has disclosed that it will include bitcoin into its balance sheets.
In addition to its direct investments in the bitcoin mining sector, Tether has set aside much funds for research and development. This year alone, the company has allocated over $800 million to carry out research in crypto-mining related fields such as energy use.
Tether’s entry into the bitcoin mining industry indicates that there will be a few dominant players in the sector. Currently, Marathon Digital Holdings, a publicly traded company controls about 4% of the total BTC mining hash rate. However, it’s possible that in the future Tether will own more than 1% since it has many financial resources.
Tether’s strong entry into the BTC mining sector will position it as one of the biggest crypto project. This will also increase competition which may push other bitcoin miners out of business.
Locations for Tether mining Operations
We have already pointed out Tether’s strategic plan of roving its mining facilities to areas where electricity is cheap. Nonetheless, Ardoino told Bloomberg that it will establish its mining facilities, with capacities of between 40 and 70 megawatts in Uruguay, Paraguay, and El Salvador. One of the key factors for choosing such locations is cheap electricity and crypto-friendly regulations.
Mining Challenges the 2024 Bitcoin Halving Will Create
The effects of bitcoin halving on mining are complex and diverse. First, bitcoin halving presents a very good opportunity for the miners since it may lead to its price rise.
In the aftermath of all the previous halving events the bitcoin price rose by large margins. If the same scenario occurs the BTC miners will benefit from the increase in its value as they will generate more revenue from the sale of each BTC than now.
Nonetheless, the halving event presents several challenges which may affect Tether during its first few mining years. First, the 2024 bitcoin halving will reduce the miner’s reward per block from 6.25 BTC to 3.125. This means that miners with inefficient mining facilities may face viability problems.
This also means that the bitcoin miners that operate in locations where the cost of electricity is very high may make very low profit or even incur losses. For context, mining a single bitcoin requires around 266,000 kilowatt-hours (kWh) of electricity. Anyway, the electricity cost factor is a major reason Tether has chosen to establish its mining facilities in countries with relatively low cost of energy.
It is more likely that mining competition will increase in the post 2024 halving event era. Nick Cote, founder of Second Lane, has a similar view. He said, “I continue to stand on the hill that most miners will not be able to effectively compete in the next phase of participation in the mining space. The amount of network hash outside the US will continue to grow, leading to stiff competition.”
It’s worth noting that the bitcoin mining difficulty is likely to keep on rising in 2024. Considering that it has increased multiple times this year, the same may occur in 2024 and beyond. Basically, the mining difficulty measures the computing power required to mine new bitcoin. The bitcoin network balances the average blockchain production rate to get six blocks per hour.
Conclusion
Tether is expanding its cryptocurrency operation into bitcoin mining. It intends to establish its mining facilities in Uruguay, Paraguay and El Salvador. Already, it has made several crypto investments in companies like Volcano Energy and Northern Data. If it manages to attain 1% of the mining quarter, as it intends, it will be among the 20 best crypto mining firms.
FAQs about Tether
Does Tether have a future?
Tether has a good future since it owns the leading stablecoin, Tether USDT. Many investors use USDT to maintain the value of their money. Currently, Tether is also investing in bitcoin mining.
What will Tether be worth in 10 years?
Since Tether USDT is a stablecoin its value is unlikely to change in 10 years. This means it will maintain a price of $1 after 10 years.
Why is USDT going down?
In most cases, the value of USDT does not go down. However, there are times when its value may deviate from the $1 peg. Usually, this occurs when there is bad news about Tether or when there are serious macroeconomic challenges like the collapse of large banks.
