Crypto companies are going belly up left and right and Bitcoin mining companies also appear to be taking on water faster than they can bail. In mid-Ju
Crypto companies are going belly up left and right and Bitcoin mining companies also appear to be taking on water faster than they can bail. In mid-June, Compass Mining CEO Whit Gibbs and CFO Jodie Fisher abruptly resigned after allegations that the Bitcoin mining hardware and hosting company had failed to pay hundreds of thousands of dollars in overdue electricity bills to Dynamics Mining, a facility provider for Compass.
Bloomberg recently reported that many industrial-size Bitcoin miners took on a significant amount of debt by leveraging their equipment and BTC as collateral for loans to either acquire additional gear or expand their operations. According to the report, and data from Arcane Research, miners owe some $4 billion in loans and now that Bitcoin price trades near its 2017 all-time high, the trend of miners liquidating their BTC holdings at swing lows to cover capital costs and operational costs is expected to pick up speed.
In the last month Marathon Digital, Riot Blockchain, Core Scientific, Bitfarms and Argo Blockchain PLC have each sold between 1,000 to 3,000 BTC to cover debts, operational (OPEX) and capital expenses (CAPEX).
The troubles faced by miners is also having a knock-on-effect on ASICs and their pricing at major mining hardware merchants like Big Sky ASICs, ASIC Marketplace, Bitmain and Kaboomracks shows popular top and mid-tier ASIC miners selling up to 70% down from their all-time highs in the $10,000 to $18,000 range.
With data from Arcane Research showing publicly traded industrial miners now selling more Bitcoin than they mined in May, it’s possible that some will either reduce their footprint and scale back, or go out of business if they are unable to cover OPEX and CAPEX debt.
According to Jaran Mellerud, a Bitcoin mining analyst at Arcane Research:
“If they are forced to liquidate a considerable share of these holdings, it could contribute to pushing Bitcoin price further down.”
Of course, news headlines and tweet threads only ever tell a small part of the story, so Cointelegraph reached out to Luxor Technologies head of research Colin Harper to gain clarity on how industrial miners view the current situation.
Cointelegraph: Bitcoin is trading below realized price and at times it’s dipped below miners cost of production. So far price has struggled to hold above the 2017 all-time high and the hashrate is dropping. Typically on-chain analysts pinpoint these metrics hitting extreme lows as a generational purchasing opportunity. What are your thoughts?
Colin Harper: I don’t really like telling folks when and when not to buy. That said, I never thought we’d see $17,000 BTC again. Anything around or under $20,000 seems like a good deal to me, but I’m also preparing for lower prices should that happen.
CT: What is the state of the BTC mining industry right now? There are miners liquidating their stack, leveraged miners might go bust, sub-optimal miners are turning off their rigs and ASICs are currency on a firesale. Listed miners’ stock price and cash flow is looking pretty bad right now. What’s happening behind the scenes and how do you see this impacting the industry of the next 6 months to a year?
CH: The short, straight, and skinny: profitability is in the toilet, so miners with too much debt, high operational costs, or both are being shaken out. Hashrate will grow much more slowly this year than anticipated as a result of the profitability crunch, ASIC prices will continue to fall, and a lot of new miners who hopped on the hash train last year will be thrown off. Miners with all-in costs at or below $0.05/kWh are still mining with fat profit margins.
The long, lumpy, and fat:
In 2021, Bitcoin mining profitability hit multi-year highs. At the same time, interest rates were still low and miners took on debt to finance hashrate expansions during this profitability boom. Now, things have changed: profitability is slipping toward all-time lows, interest rates are rising, energy prices are skyrocketing, and all indicators point towards a global recession. Plenty of miners signed hosting contracts, power purchasing agreements, and other operational agreements using 2021 profitability models, not factoring in the current conditions. Now that bull market conditions have flipped and the bear market is here, miners with higher costs and untenable debt are starting to liquidate their operations.
Still, we haven’t heard of any miners having equipment seized and forced liquidation. There’s plenty of self-imposed selling from miners who got ahead of themselves last year, but plenty of public miners are still mining at healthy margins.
As for the next six months, some miners, both public and private, will become insolvent, so we expect bankruptcies and plenty of mergers and acquisitions in the year to come. With energy prices high and rising, miners will have to get smart to lower costs and find cheaper sources of power. Off-grid miners will thrive in the years to…
cointelegraph.com