Sam Cooling
The crypto winter has claimed many victims, with the fall of FTX, the implosion of Luna, and collapse of giants Celsius and 3AC.
Amid the hype of 2021’s sensational bull run, greed-fuelled illusions of a super cycle led to huge swathes of high interest debt being taken on by leading firms.
But tumbling price action in 2022 crushed once impressive profit margins. And for some reality has already come home to roost.
In no sector was this more apparent than Bitcoin mining – a speculation-driven endeavour plagued by huge hardware requirements and a serious vulnerability to volatility in energy markets.
Among the many bear market victims, Computer North – an operator of mining facilities – was forced to file for bankruptcy back in September.
This was quickly followed by publicly traded Core Scientific which also entered administration proceedings in December.
Argo Blockchain – a big name in 2021 – was pressured into selling off large amounts of ASIC mining hardware. Argo’s sell-offs included a facility which was sniped by mining giant Galaxy Digital – keen to expand its streamlined and profitable mining operations. Galaxy’s acquisition of Argo’s Helios Mine was an absolute steal at $65m, the facility itself reportedly cost more than $1.5bn to build.
Stronghold Digital Mining, vulnerable to the high interest debt liabilities taken on during the 2021 bull run, and unable to pay after Bitcoin’s price collapse – entered into negotiations seeking a debt holiday just before Christmas.
It has never been harder to mine a Bitcoin
Speaking to Wired magazine, Fred Thiel – CEO of Marathon Digital Holdings blamed the sector’s woes on low profitability during the bear market period and the massive spike in energy costs.
In 2021, Marathon’s mining profit margin was as large as 90% according to the CEO – but these profits have completely collapsed leaving the firm on the verge of sinking underwater.
Indeed, Bitcoin’s Difficulty Rate – a measure of how difficult it is to mine a Bitcoin block – has been on a steady climb since the 2021 bull run.
Now sat at an all-time high (ATH) of 39,194,203,774,821.63 difficulty – it has never been harder to mine a Bitcoin.
The Difficulty Rate adjusts automatically ever two weeks to reflect the amount of computing power directed at the SHA256 hash. The more miners trying to mine a Bitcoin, the harder it is.
Hash Rate (318.7 EH/s) itself has been on a massive surge over the past 3 months, with no signs of slowing down soon.
This too is sat at an ATH, and with the next Bitcoin mining epoch due to end in just over 4 days – miners are anticipating an 11% spike in already ATH mining difficulty.
Hash Ribbons – a market bottom indicator – that works by measuring miner capitulation periods (when Bitcoin is too expensive to justify mining), paints a slightly different picture.
Itself showing that Bitcoin’s recovery in January pulled miners profit margins out the depths of a major capitulation ribbon following FTX’s collapse in November.
This could suggest that the worst is over for Miners for now, after all mining revenue loosely track Bitcoin’s price action – and things are looking up.
Bitcoin mining profits have seen an uptick into 2023, this has had a knock-on effect for crypto mining stocks – with the best in the sector reaping investor attention and capital.
$BTC price surge clearly helped crypto mining stocks. It also helped Bitcoin-based exchange-traded funds outperform most of the traditional equity ETF market. https://t.co/S8miK9djd5
— Richard Strongs (@rtfortes) February 16, 2023
Jeff Lucas, CFO of Bitfarms, told Wired that his firm had worked to restructure its finances in the downturn in order to prepare for the next halving event.
“The beauty of halving cycles is that the industry [is forced] to become more efficient—a lot of weaker players will have to exit the business,” said Lucas.
Indeed, the mining companies that survive this period and manage to innovate their models to become more efficient players will receive a bigger market share and this could supersize their profits during a future bull run.
BTC mining stocks surge as Bitcoin breaks $25k#crypto #cryptonews #bitcoin #cryptobangshttps://t.co/C58xCdRdAR pic.twitter.com/0EAYENJZo5
— CryptoBangs! (@cryptobangs) February 16, 2023
Bitfarms (BITF) are among the most profitable players in the industry at present but none have performed quite as well as Iris Energy (IREN) which has surged +269% in 2023.
This comes as the sustainable mining firm reportedly managed to elevate their share of hash rate to 5 EH/s in 2022 with some of the cleanest emissions in the game.
But with the Bitcoin halving rapidly appearing on the horizon in Spring 2024, the rush is on to get businesses in order before rewards get slashed – only the strong will survive.
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This article was written for Business 2 Community by Sam Cooling.
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