Trading the Crypto-Fueled Rally in Uranium Prices
A late-summer rally in uranium prices has now been linked to increasing demand from the cryptocurrency mining sector for nuclear-powered electricity.
The last couple of years in the financial markets have been anything but predictable, and for that reason, it’s not much of a surprise to see uranium prices spiking in 2021.
As of late September, the price of raw uranium has jumped by nearly 50% year-to-date (YTD), and at one point was up as much as 72% in 2021. Uranium is now trading roughly $43/pound after starting the year closer to $29/pound.
And a key reason for the sudden price appreciation has now become more clear—the cryptocurrency mining sector.
As most are aware, vast amounts of energy are needed to fuel cryptocurrency mining. In recent years, as cryptocurrency mining has become more and more competitive, digital miners sought to establish their operations in close proximity to cheap and stable energy sources.
In many cases, that resulted in mining operations being linked to energy sources with heavy carbon footprints—like coal, oil or natural gas.
Earlier this year, the cryptocurrency sector made headlines due to new research that revealed the amount of energy necessary to fuel the world’s cryptocurrency mining sector was growing exponentially, with estimates suggesting it was equivalent to the annual requirements of a large country—such as Argentina or Norway.
Due to the negative press associated with these revelations—not to mention disparaging comments by crypto influencers like Elon Musk—prices in the sector cratered across the board in early summer.
Enter the uranium sector, or more specifically, the nuclear power industry.
In an attempt to sidestep the negativity associated with fossil fuels and climate change, some cryptocurrency miners apparently made the decision to try and utilize a different source of plentiful, stable and relatively cheap energy—nuclear.
At their core, nuclear fission plants are powered by uranium pellets. The heat produced from the reactor core is used to boil water into steam, which in turn powers the blades of a steam turbine. As those turbines rotate, they activate generators that produce electricity.
Considering all of the above, it’s a lot easier to understand why uranium prices have taken off this year. And increasing demand is only half the story.
In terms of supply, uranium production had fallen off slightly in recent years, and even more so during 2020 as a result of the COVID-19 pandemic. To wit, global production fell from a peak of 62,379 tonnes in 2016 to 54,752 by the start of 2020, according to the World Nuclear Association.
Taken together, that means supplies are relatively tight at a time when demand is expanding—the type of perfect storm in the commodities sector that typically results in a strong bullish move.
Similar circumstances have been pushing natural gas prices higher in 2021, as well.
It’s important to note that while considered relatively “clean,” nuclear power does create hazardous waste. Radioactive (i.e. nuclear) waste is a byproduct of nuclear reactors, and “spent” uranium must be disposed of in a safe and secure manner.
Unfortunately, a comprehensive solution for disposing (or even storing) nuclear waste hasn’t yet been agreed on, and as a result, the vast majority of such nuclear waste gets stuck in suboptimal, temporary storage. A lot of it actually is stored on an “interim” basis at the same location the waste is generated.
Ideally, scientists believe that deep geological (i.e. underground) storage of nuclear waste would be most efficient. But where to locate such facilities isn’t exactly a simple proposition, as nobody wants radioactive waste stored in their backyard.
In that regard, it’s easy to see how nuclear power may be cheap and available, but it’s harder to see how the long-term environmental impact of its use in powering the cryptocurrency sector is a net benefit. Ideally, cryptocurrency operations would be powered purely by renewable energy, with minimal environmental impact.
Obviously, some players in the crypto industry aren’t waiting for the final verdict as it relates to the ethical dilemma of powering their operations with nuclear power. For example, the bitcoin miner TeraWulf recently entered into a joint venture with Talen Energy. This collaboration calls for a large bitcoin mining operation to be established next to one of Talen’s underutilized nuclear plants in Pennsylvania.
Similarly, the bitcoin miner Standard Power plans to establish an operations center near one of Energy Harbor’s nuclear plants in Ohio.
And proposed nuclear plants (i.e. not yet completed) also appear to be aligning with cryptocurrency miners. Recently, the nuclear-focused startup Oklo Inc. signed a 20-year supply deal with hardware and hosting firm Compass Mining.
The latter example, in which a new nuclear power plant will theoretically be supplying the energy for a crypto operation is arguably the more worrisome of the two situations.
Currently, there are thousands of tons of nuclear waste in the U.S. that still haven’t found a permanent home. Adding to that pile, from a sector that serves only a miniscule percentage of Americans, seems to fall well short of serving the common good.
It’s one thing to use excess energy from existing nuclear power plants to fuel crypto miners, but it’s quite another to tap new nuclear power sources without a wider analysis of the long-term environmental ramifications.
One can’t overlook the fact that increased competition for electricity in the U.S. will undoubtedly drive up prices further, as well.
To learn more about trading the current rally in uranium readers can also review this link: Uranium Prices Near Multi-Year High, What’s Next?
For updates on everything moving the markets, tuning into TASTYTRADE LIVE—weekdays from 7 a.m. to 4 p.m. CST—is also recommended.
Sage Anderson is a pseudonym. He’s an experienced trader of equity derivatives and has managed volatility-based portfolios as a former prop trading firm employee. He’s not an employee of Luckbox, tastytrade or any affiliated companies. Readers can direct questions about this blog or other trading-related subjects, to support@luckboxmagazine.com.
