Imagine my surprise when a Bitcoin miner announced it was setting up operations just outside my small Alberta town.

(I’ve just outed myself, haven’t I? Y’all can easily Google where I live and STALK MY ASS. I’d ask you to kindly not bother, but you’ll likely get bored to death before murdering me. I do not have an entertaining life.)

It turns out the move made sense for one simple reason. For whatever reason, the county where they set up operations has ridiculously low power costs. Since electricity was their main input cost, that price mattered. A lot.

This was back in 2016, and you can already predict what happened next. The price of Bitcoin fell and profits went down with it. The company recently made local headlines by laying off a big chunk of its workforce, which was mostly minimum wage guys doing pretty easy work. I know more than one guy who worked security, for instance. Why does this place need security? It’s just a bunch of Seacans on the bald-ass prairie.

Anyhoo, let’s move on from my newly laid off acquaintance and focus on what this post is really about. This company is publicly traded on the TSX Venture Exchange, which means we can finally see just how much it costs to mine Bitcoin. Are you as excited as I am?

How much does it cost to mine Bitcoin?

The company operating locally used to be branded as Bitfury, but now it’s ran as Hut 8. These two companies are quite connected. Bitfury owns a bunch of Hut 8 shares and they work together on all of Hut 8’s North American projects.

Hut 8 operates two Bitcoin mining facilities in Alberta. The larger facility is located near Medicine Hat, while the smaller one is close to Drumheller. Like previously mentioned, these locations were picked because they offer cheap power.

From a recent investor presentation, here’s how much it costs to mine Bitcoin. We’ll dig a little deeper into these numbers in a second:

So if they’re making such high gross margins, why doesn’t the company make any money?

It turns out they have massive depreciation costs, which account for just about all of the net loss.

They also spend a bunch of money on stock options for top execs, to the tune of $2.3 million in the first nine months of 2018.

These depreciation costs are actually going to accelerate going forward. The Medicine Hat facility was just finished over the summer at a cost of more than $100 million. It’s obvious the digital technology needed to mine Bitcoin doesn’t have that long of a life, so that $100M+ will be wrote off fairly aggressively.

The issue becomes the true life of this equipment, which represents the majority of the cost to get up and running. If it lasts longer than 3-4 years then there’s the potential to make some longer-term money here. But if it needs to be replaced semi-constantly then these miners are screwed. Especially with the price of the cyrptocurrency falling so much.

So to answer the question, it looks like it costs about US$3,000 to mine one Bitcoin, without spending a nickel on depreciation. The equipment used to mine Bitcoins will naturally become obsolete over time, so depreciation becomes a very important cost. This isn’t writing off intangible assets. We’re talking about computers and servers here.

One last note about Hut 8. Rather than selling the Bitcoins as it gets them — remember, that’s your reward for helping complete the transaction — it’s hoarding them on the balance sheet. It has some $26 million worth versus a market cap of $167 million. This will be a smart move if Bitcoins go back up in value, but it adds a further dependence on crypto that you don’t want if the price keeps sliding.

Tell everyone, yo!