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An employee works at the data centre of BitRiver, a company providing services for cryptocurrency mining in Bratsk, Russia, on Mar. 2, 2021.MAXIM SHEMETOV/Reuters

The Bible says that the rain falls on the just and unjust alike. James Joyce says the snow falls all over the land. But winter will not necessarily come for all cryptocurrency miners.

High energy costs, brought on by the Ukraine war, are having an impact on cryptocurrency miners, most of whom deal in bitcoin. That much we know. But that impact is not even.

The European miners will be the hardest hit, and through that, because of the peculiarities of crypto, it is the miners elsewhere who will end up benefitting.

It might yet be time to consider stocks in publicly traded crypto miners.

Russia’s invasion of Ukraine has resulted in heavy Western sanctions against the aggressor. In retaliation, Russia, a major natural gas exporter, has restricted the amount of the commodity it ships to Europe.

Gas prices have been spiking. That has an impact on other types of energy as consumers try to find alternatives to expensive gas. That also has an impact on electricity prices because a lot of that power is generated from gas.

Energy is fungible to a certain degree, and shocks to one type of it can reverberate to all types.

And this is how crypto miners are being affected, for energy is their true game. They have little control of the price of commodity they produce or the efficiency of their machines. Crypto mining requires vast amounts of energy, and It is the price of the electricity that makes or breaks a mining operation.

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That price has gotten a lot higher in the wake of the Ukraine invasion, and many miners are in tough, having to deal with higher production costs in the midst of a bear market.

But now the going is getting even tougher.

European Union members must now make preparations to stop all crypto mining “in case there is a need for load shedding in the electricity systems,” the European Commission recently announced.

For European miners, that’s terrible. But if they are forced to shut down, because of the way mining works, the miners who remain operating end up more profitable.

That’s because the mining rewards are fixed. Every 10 minutes or so, 6.25 bitcoins, worth about US$130,000, are released onto the network. Every miner shares in those 6.25 bitcoins.

We’ve witnessed before the phenomenon of miners gaining when competitors leave, when China said in 2021 it was banning mining, and big Chinese miners shut down. In the wake of that, the “difficulty,” a measure of how hard it was to profitably mine, dropped 28 per cent.

The impact of that can be seen in the share prices of North American miners who were not forced to shut down.

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In the two months or so after the Chinese mining ban, the shares of the Toronto Stock Exchange-listed Hut 8 Mining Corp. soared more than 160 per cent. While that was indeed during a crypto bull market, bitcoin rose only about 50 per cent during that same period.

Could we see a repeat of that this winter?

It’s hard to say. Crypto is in a bear market, confronting high central-bank interest rates for the first time in its short existence. And any miner’s fate hinges on that of its underlying commodity.

The situation in Europe is also not set in stone. Gas prices in Europe have been easing amid Germany’s admirable efforts at filling its winter storage facilities. The West might lose the stomach to continue aiding Ukraine at such high cost. Russia might capitulate amid its badly waged war. Anything can happen.

But on the flip side, many of these mining companies have sweet power deals that lock in the price for the long term. Many in North America are little affected by soaring gas prices.

As well, bitcoin has already been beaten down badly. It has languished at its current price of around US$20,000 for more than two months – which was its peak at the last bull run in 2017.

Traditionally, with every market cycle, bitcoin crashes no farther than the high it set in the last bear market, and that is where we are right now.

For the investor brave enough, there is certainly a play to be made.

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