Cryptocurrency companies are going bankrupt left and right and Bitcoin mining companies also seem to be failing faster than they can bail out. In mid-June, Compass Mining CEO Whit Gibbs and CFO Jodie Fisher abruptly resigned following 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 facilities provider for Compass.
Bloomberg recently reported that many industrial-sized Bitcoin miners took on a significant amount of debt by leveraging their equipment and BTC as collateral for loans to purchase additional equipment or expand operations. According to the report, and data from Arcane Research, miners owe some $4 billion in loans and with the price of Bitcoin trading near its 2017 all-time high, the trend of miners liquidating their BTC holdings is expected to continue. in the contribution minimums to cover capital costs and operating costs accelerate.
In the past month, Marathon Digital, Riot Blockchain, Core Scientific, Bitfarms, and Argo Blockchain PLC have each sold between 1,000 and 3,000 BTC to cover debt, OPEX, and CAPEX.
The problems miners are facing are also impacting ASICs and their prices at major mining hardware merchants such as Big Sky ASICs, ASIC Marketplace, Bitmain and Kaboomracks show that popular top and mid-tier ASIC miners they are selling up to 70% below their all-time highs in the $10,000 to $18,000 range.
Data from Arcane Research shows that publicly traded industrial miners are now selling more Bitcoin than they mined in May, so it’s possible some will reduce their footprint and downsize, or go out of business if they can’t cover the debt. of OPEX and CAPEX.
According to Jaran Mellerud, Bitcoin mining analyst at Arcane Research:
“If they are forced to liquidate a sizable portion of these holdings, it could help push Bitcoin price lower.”
Of course, news headlines and tweet threads only tell a small part of the story, so Cointelegraph reached out to Luxor Technologies head of research Colin Harper for clarity on how industrial miners see the current situation.
Cointelegraph: Bitcoin is trading below realized price and has at times fallen below miners’ cost of production. So far, the price has struggled to stay above the 2017 all-time high and the hash rate is falling. Typically, on-chain analysts point to these extreme low metrics as a generational buying opportunity. What is your opinion?
Colin Harper: I don’t like to tell people when and when not to buy. That being said, I never thought we would see $17,000 per BTC again. Anything around or below $20,000 sounds like a good deal to me, but I’m also bracing myself for lower prices if that happens.
CT: What is the state of the BTC mining industry right now? There are miners liquidating their stack, leveraged miners could go bust, sub-optimal miners are shutting down their rigs, and ASICs are bargaining chips in a fire sale. The share price and cash flow of publicly traded miners are looking very bad right now. What is happening behind the scenes and how do you think it will affect the industry in the next six months or a year?
CH: Bottom line: profitability is rock bottom, so miners with too much debt, high operating costs, or both, are being shaken. The hash rate will grow much slower this year than anticipated as a result of the profitability crisis, ASIC prices will continue to fall, and many of the new miners who jumped on the hash bandwagon last year will find themselves pushed out. Miners with total costs equal to or less than $0.05/kWh continue to mine with large profit margins.
The long, bulky and fat ones:
In 2021, Bitcoin mining profitability hit multi-year highs. At the same time, interest rates remained low and miners took on debt to finance hash rate expansions during this profitability boom. Now, things have changed: Profitability is falling to record lows, interest rates are rising, energy prices are soaring, and all indicators point to a global recession. Many miners signed hosting contracts, power purchase agreements, and other operating agreements using 2021 profitability models, without taking current conditions into account. Now that bull market conditions have reversed and the bear market has arrived, miners with higher costs and unsustainable debt are beginning to wind down their operations.
However, we have not heard of any miners having their equipment confiscated and forced to liquidate. There are many self-imposed miner sales that were brought forward last year, but many public miners are still mining with healthy margins.
As for the next six months, some miners, both public and private, will become insolvent, so we expect bankruptcies and many mergers and acquisitions in the coming year. With energy prices high and rising, miners will have to scramble to cut costs and find cheaper energy sources. Offline miners will thrive for years to come.
To illustrate this with data:
In 2021, the average hash price was ~$0.30/TH/day last year (so on average a 100TH machine like an S19j Pro would earn you $30/day). Right now the hash price is ~$0.088/TH/day, so that same machine is making $8.80 a day. If your energy cost is $0.06/TH/day, then this kit gives you a $4.40 profit (vs. $25.60 on average last year).
Hash price is a metric from the Luxor Hashrate Index that is used to calculate the expected revenue from a hash rate unit when a miner is using a full pay per share (FPPS) pool like Luxor. The hash price is referred to as $ per terahash per day, while terahash refers to the speed at which a Bitcoin miner produces computations. At $0.09/TH/day, a 100 TH machine would earn $9/day using Luxor or a similar FPPS pool.
CT: Why exactly is now a good or bad time to start mining? Are there particular chain or profitability metrics you look at or is it just your intuition?
CH: With the hash price near all-time lows, it is a bad time to start mining, but the bear market will give astute investors a chance to lay the groundwork to thrive in the next bull market.
Machine prices are going down drastically, making it much more affordable to buy a new generation machine (Luxor ASIC trading desk has people selling Whatsminer M30 and Antminer S19 series rigs for $30-50/TH ). Of course, there’s a reason teams are getting cheaper, and that’s because they’re making 1/3 of what they did last year (and are likely to make even less than that when this bear market is said and done). ). I expect machine prices to drop further.
Now, with all of that being said, if you can find favorable power rates and/or a good hosting deal, the next few months will likely provide favorable ASIC prices for those looking to start up a mining operation. The bear market will be a good time to position yourself for the next bull run.
CT: Let’s say I have a million dollars in cash, is this a good time to set up a trade and start mining? What if I have between $300,000 and $100,000? In the $40,000 to $10,000 range, why wouldn’t this be a good time to mine at home or use a hosted mining service?
CH: This is definitely not a good time to try to set up a mining operation at home. As far as deploying capital on an industrial scale, it really depends on the site and the expertise of the people running it.
CT: Would you say now is a good time for home miners to get into the game? For example, a regular guy who wants to use two Antminer s19j Pros with a dipping system?
CH: Without a doubt, no. If it were me, I would wait for ASIC prices to drop further. Even then, I’d want to make sure I can do something to optimize the efficiency of the ASIC to improve ROI (for example, if you can recycle heat to heat your house, so you don’t pay for heating in the winter or something, then actually you are accelerating ROI because you are earning BTC Y covering heating costs that you would have to pay anyway).
CT: How could the upcoming Bitcoin halving alter the landscape of industrial mining and the amount of equipment needed to solve an algorithm that gets harder to crack with each halving?
CH: Bitcoin miners will try to increase their hash rate as much as possible before the halving. Rising energy prices and low profitability will make this difficult (in part), but miners with cheap costs and conviction will grow their fleets accordingly. In terms of industrialization, it certainly looks like mining is going in that direction, although I think the equation changes once energy producers (oil companies, renewables farms, power authorities, etc.) start mining bitcoin at scale – the Energy costs and recessionary pressures could limit the scope and scale of industrial mining we see with miners the size of Riot Blockchain and Core Scientific in the industry.
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