There are many crypto companies going bankrupt. Bitcoin mining companies seem to be taking on more water than they can bail. Compass Mining CEO Whit Gibbs, and Chief Financial Officer Jodie Fisher, abruptly resigned in mid-June after it was revealed that Compass Mining and its hosting company, Compass Mining, had failed to pay thousands of dollars in unpaid electricity bills to Dynamics Mining. Compass is a provider of Bitcoin mining hardware.
Bloomberg reported recently that many large-scale Bitcoin miners took on significant debt using their equipment and BTC to secure loans to expand or acquire more gear. The report and Arcane Research data show that miners owe $4 billion in loans. With Bitcoin’s 2017 high trading price, it is likely that miners will continue to liquidate their BTC holdings at swing-lows to pay capital costs and operating costs.
Marathon Digital, Core Scientific and Bitfarms have all sold between 1,000 and 3,000 BTC in the last month to pay debts, capital expenses (CAPEX), and operational expenses (OPEX).
ASICs are also suffering from the problems faced by miners. Prices at major mining hardware merchants such as Big Sky ASICs, Bitmain, and Kaboomracks show top-tier and mid-tier ASIC miners being sold up to 70% below their highs of $18,000 to $10,000.
Arcane Research data shows that publicly traded industrial miners are now selling more Bitcoin in May than they mined in May. This could mean that some may reduce their footprint or scale back if they can’t cover OPEX and CAPEX debt.
Jaran Mellerud is a Bitcoin mining analyst at Arcane Research.
“If they have to liquidate a significant portion of these holdings, it could lead to Bitcoin prices further falling.”
Cointelegraph reached Colin Harper, head of research at Luxor Technologies, to get a better understanding of how industrial miners see the current situation.
Cointelegraph: Bitcoin trades below its realized price, and sometimes it even falls below miners’ production costs. The price has not held above its 2017 record high, and the hash rate has been dropping. On-chain analysts often identify these metrics reaching extreme lows as a potential generational buying opportunity. What are your thoughts?
Colin Harper: I don’t like telling people when to buy. Despite that, I didn’t think we would see $17,000 BTC ever again. Anything under $20,000 seems to me a great deal, but I also plan for lower prices if that happens.
CT: What’s the current state of the BTC mining sector? Miners are liquidating their stocks, some leveraged miners may go bankrupt, and sub-optimal miners have stopped using their rigs. ASICs can be currency for a firesale. The stock price and cash flow of listed miners is very low right now. How will this affect the industry in the next six months or a year?
CH: The short, simple, and skinny version of profitability. Miners with high operating costs or too much debt are being evicted. The profitability crunch will cause the hash rate to grow more slowly than expected this year. ASIC prices will continue falling and many new miners who joined the hash train last summer will be dismissed. Miners who have all-in costs below $0.05/kWh still make a good profit.
The fat, long, lumpy and fatty:
Bitcoin mining profitability reached multi-year highs in 2021. At the same moment, interest rates were still low so miners took out debt to finance this boom in profitability. Things have changed. Profitability is falling to all-time lows, interest rates rise, energy prices are soaring, and all signs point towards a global economic recession. Many miners have signed hosting agreements, power purchasing agreements and other operational agreements that use the 2021 profitability model, which does not take into account current conditions. Miners with high costs and unsustainable debt are beginning to liquidate their operations now that the bull market has ended and the bear market has begun.
We haven’t yet heard of any miners being forced to liquidate their equipment or having it seized. While there is a lot of self-imposed selling by miners who were too ambitious last year, many public miners still mine at healthy margins.
In the next six months, there will be some insolvency among both public and private miners. We can expect many mergers and acquisitions to take place in the coming year. Miners will need to be smarter to find lower-cost power sources and reduce their energy costs, as rising energy prices are a constant threat. In the coming years, off-grid miners are expected to prosper.
This data illustrates this:
In 2021, average hash price was $0.30/TH/day. This means that a 100-TH machine such as an S19jPro would generate $30 per day. The current hash price is $0.088/TH/day. This means that the same machine makes $8.80 per day. This rig will net you $4.40 per day if your power cost is $0.06/TH/day (compared to $25.60 average last year).
The hash price, a Luxor’s Hashrate Index metric, is used to calculate expected revenue for a unit hash rate when miner uses a Full-Pay Per Share (FPPS) pool such as Luxor. The hash price is $ per terahash/day, while terahash refers the speed at which a Bitcoin miner produces computations. A 100 TH machine earning $9 per day using Luxor or a similar FPPS Pool would earn $0.09/TH/day.
CT: Why is it a good time or a bad time to begin mining? Do you have any specific on-chain metrics, profitability metrics, or just gut feelings?
CH: The hashprice is at an all-time low, making it difficult to get started mining. However, the bear market will allow savvy investors to prepare for the next bull market.
Machine prices are dropping dramatically, making it much easier to buy a new generation machine. Luxor’s ASIC Trading Desk sells Antminer S19 and Whatsminer M30 series rigs for $30-50/TH. The reason the rigs are becoming cheaper is because they make 1/3 of last year’s profits (and will likely make less in this bear market). Machine prices will continue to fall, I believe.
All that being said, favorable power rates and/or good hosting agreements can help you find favorable ASIC prices in the coming months for anyone looking to start a mining business. This is a great opportunity to prepare for the next bull market.
Related: Bitcoin may not be at its bottom, but miners claim it has ‘always made gains over any 4-year period.
CT: Let’s suppose I have $1,000,000 cash. Would it be a good idea to start a mining operation? How about $300,000.00 to $100,000? Why not set up a home mining operation or use a hosted service to mine for as low as $40,000 to $10,000?
CH: It is not the best time to start a home-mineral operation. It all depends on the location and the skills of those running it.
CT: Do you think that the right time to start playing home-based mining is now? Imagine a regular Joe looking to run two Antminer Pros with immersion.
CH: Unambiguously no. If I were you, I would wait for ASIC prices to drop further. Even then, I’d want to ensure that ASIC efficiency is optimized to increase ROI. For example, if you have the ability to recycle heat and heat your home to save money on heating, you are actually increasing ROI as you are earning BTC while covering heating costs you would otherwise have to pay.
CT: How will the upcoming Bitcoin Halving affect the industrialized mining landscape and the equipment needed to solve an algorithm that becomes harder to crack with each halving of Bitcoin?
CH: Bitcoin miners will attempt to increase their hash rates as much before the halving. This will be affected by rising energy prices and low profitability, but miners with low costs and conviction will increase their fleets accordingly. Mining seems to be heading in that direction. However, I believe the equation will change once energy producers (oil companies and renewables farms authorities, etc.) begin mining bitcoin at scale. Recessionary pressures and scaling-power costs could limit the industrial scale we see with the Riot Blockchain or Core Scientific-sized miners in this industry.
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Eileen Wilson –Technology and Energy
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