Power Trading Desk also trading Crypto?

power gurus on WSO, wondering what do you think about power trading desks also trading bitcoin. The volatility is similar and electricity usage could be an interesting "basis" to trade

Comments (18)

  • Managing Director in S&T - Other
Apr 13, 2021 - 12:11pm

Truly, think we can get there but will take time. The first step is for them to understand if how actively they need to "hedge the power" that is happening the last 18 months. But lots of folks are waiting to see how batteries and further renewable growth impacts the space as you can imagine a lot of tech crypto dudes who are about changing the world ain't going to say lets build some fossil fuels so I can hedge my crypto.

I do not follow crypto futures myself so not sure how actively these guys even use tools yet. But hedging an input cost always easiest first step.

Most Helpful
Apr 13, 2021 - 1:55pm

I'll take a counterpoint on this topic.

Having the SAME desk hedge power and crypto is nuts and is worse than a coal trader hedging RINs.

That being said...

Power folks hedge everything, if they are sophisticated enough and have an appetite for odd customer deals.   I'll share some examples / experiences.

  • Selling a client a costless collar on Aluminum based on Indiana Hub power prices ("shiny spread")
  • Selling an predominantly ag utility options on corn in years when prices rose to offset their SPP power costs (irrigation load)
  • Selling a large corporate meat packer / processor Ni Hub power tied to live cattle futures (they used 100% more electricity to kill the cattle - "Moo Spread")
  • Selling super-peaking ERCOT power options with the strike tied to scrap metal prices ("arc furnace")
  • Selling Henry Hub natural gas collars struck against NOLA Ammonia prices.
  • Selling Tracking accounts as part of renewables deals based on solar iridescent contracts.
  • Selling Platinum and Palladium Leases to utilities to hedge their scrubber exposure (P&P are metals in the process)

So crypto is no different.  It takes X power over Y time to run the Antminers to receive Z Bitcoin (See Danskammer Plant in New York, or long-term power contracts from NYPA from Robert Moses).  To STRUCTURE the deal is relatively easy (costless collar or 2 for 1 put/call ratio -- if BTC drops below 20,000 company puts power 2 for 1, etc.).

Namaste.

D.O.U.G.

  • 6
Apr 13, 2021 - 2:59pm

For the same reason that there are natty traders, cattle traders, steel traders, etc.

You are an expert in your field and highly knowledgeable in all fields.

Trading crypto is a full-time job.  In "smaller shops" where there is only one or two traders?  Fine.  But across an organization?  Not likely.  Could happen, but not likely

Namaste.

D.O.U.G.

  • Managing Director in S&T - Other
Apr 13, 2021 - 3:43pm

A heat rate or crack spread has direct correlation due an actual physical mechanism relating the two. Similar to the examples by DOUG you lack a direct correlation between power and crypto. The sole or major deciding factor on crypto prices is not just power price just like all those other whacky examples you have massive pair risk in that portfolio. You can infer or say power prices could signal a move in crypto or vice versa but anyone saying beyond that is kidding themselves.

Apr 23, 2021 - 4:14pm

there is a firm out there trying to locate bitcoin mining at wind farms. Problem is that you now have two volumetric risk problems, how much bitcoin will I mine and how much power will I produce...but someone is out there banging that drum and someone will get in line and march to that beat, just a matter of when.

Nov 27, 2021 - 6:17am

Everything seems to be simple here. When you use conventional components when mining cryptocurrencies, then you spend more electricity. It is better to buy a mining machine, and then you will have a better chance of finding something, namely crypto. At the same time, the electricity that you will spend will not be used in vain.
I have Antminer E9 and have been mining for a long time. During all this time, I managed to find only Ethereum. This crypto is not as valuable as Bitcoin, but still, its value today is $4,142. In addition, the rate continues to grow. I think it's a great catch.

Dec 1, 2021 - 7:21pm

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Namaste.

D.O.U.G.

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