Mining Hedging means reducing selected economic risks of mining, such as changes in bitcoin’s price, revenue from capacity or electricity costs. A financial or pricing contract should offset a particular risk faced by the farm. It does not itself guarantee output, reliable operation or net profit.
Hedging makes sense in relation to something a business already holds, produces or needs to buy. This is broadly how CFTC, the US market regulator, explains it. For a farm, that might mean bitcoin (BTC) saved from last week, future machine revenue or a rising power bill. These are different risks. If expensive electricity is the main problem, a contract to sell bitcoin may not solve it. We therefore describe the change threatening the budget before choosing an instrument. [1]
A farm can earn less even without bitcoin falling. When mining difficulty rises, the same capacity generally earns fewer BTC; transaction fees also change. Luxor therefore offers a financial Hashrate Forward called an NDF (non-deliverable forward), which settles price differences against Hashprice without delivering capacity. Hashprice is the expected daily revenue of a unit of capacity. Fixing a BTC sale price does not fix how much the farm mines. Nor does a capacity price agreed in bitcoin fix its revenue in US dollars (USD). We need to identify which variable the contract actually covers. [2]
Luxor specifies NDF quantities in PH/s, petahashes per second, a unit of computing speed. What matters to the farm is the capacity it can actually provide during the agreed period, not merely the sum of equipment ratings. Scheduled maintenance or curtailment when electricity is expensive reduces that capacity. Alongside quantity, we compare contract dates, daily settlement periods, currency and index calculation. Otherwise we might have a “hedged month” on paper while protecting income different from what that month actually produces. [2]
In our own one-day example, a farm runs at 10 PH/s and sells an NDF for only 8 PH/s at 50 USD/PH/s/day. The unit expresses daily revenue in US dollars for each PH/s of computing capacity. At an index of 40 USD/PH/s/day, mining earns 400 USD and the contract pays another 80 USD: a total of 480 USD. At 60 USD/PH/s/day, mining earns 600 USD but the contract costs 80 USD, leaving 520 USD. We assume mining revenue tracks the index exactly and omit costs and fees. This is gross income. Its variation has narrowed, not disappeared; some potential upside goes to the counterparty too. [2]
Return to the example at an index of 60 USD/PH/s/day. If a failure reduces actual capacity to 4 PH/s, mining earns 240 USD. The NDF still requires a payment of 80 USD, leaving 160 USD before costs. The contract still covers 8 PH/s while the farm provides only 4 PH/s. Luxor bases financial settlement on the agreed quantity; a broken machine does not reduce it automatically. Part of the obligation no longer matches running production. A contract therefore needs reassessment after an outage or operating-plan change, not just when it is signed. [2]
Receipts and payments need not arrive on the same day. Luxor marks positions to market and may request more collateral—assets pledged to cover obligations—when reserves are insufficient. Margin here means a required financial reserve, not mining’s profit margin. A farm may expect higher revenue but first need money for a contractual payment. Collateral is also not automatically a ceiling on possible loss. Planning must include access to funds, counterparty failure and any cost of ending the contract early. [3]
A Power Purchase Agreement is an electricity purchase contract; its financial version, a Financial PPA, settles a price difference. The US Environmental Protection Agency (U.S. EPA) explains that the hedge depends on how closely the contracted market price moves with the customer’s actual purchase price. If the price in another region barely changes while the farm’s tariff rises, the payment received may not be enough. Consumption hours and quantity matter too. A financial contract does not itself deliver electricity, so the connection, supplier and outages still need separate attention. [4]
CFTC uses basis risk for an unexpected change in the difference between the cash market price and a futures price. Put simply, prices meant to offset each other can diverge. For our farm, “we made money on the contract” is therefore not the main conclusion. If revenue fell more or costs increased, the overall outcome could be worse. We add mining revenue and settlement, subtract energy, operating and contract costs, and check available cash. Only that complete picture shows whether the hedge served its purpose. [1]
For the clearest picture, read this entry together with Hedging, Hashrate Forward, Hashprice, Power Purchase Agreement. The reverse links also lead from Power Purchase Agreement, Hashrate Forward.