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How the collapse of the price of Bitcoin influenced large miners and what will happen next


Nov 9, 2022

How the collapse of the price of Bitcoin influenced large miners and what will happen next

Bitcoin’s fall below $ 20,000 was an unpleasant surprise for market participants. Never before the price of the first cryptocurrency failed the peak of the previous cycle.

Panic sentiments and sales at a loss were reflected in the values ​​of onchain-indicators like ASOPR and a cryptocurrency index of fear.

Some miners have already surrendered. However, large market participants remained, the shares of which are traded on stock exchanges. They account for about a fifth of the hash.

If the price of bitcoin falls even lower, public companies will begin to get rid of significant reserves of cryptocurrency as if from ballast.

Based on the materials of Arcane Research, Forklog magazine appreciated the probability of a new saleswave wave by large miners.

  • The bear market negatively affected large mining companies with access to capital markets, inexpensive electricity and advanced Bitcoin production devices.
  • Cash flows of giants like Marathon are insufficient to pay for the upcoming supplies of equipment.
  • Mining companies can activate bitcoin sales by creating additional pressure on the market.

Merciless bear market

Against the background of deep correction, the cash flow from bitcoin mining was reduced by 80% compared to the peak of November 2021 – to levels of two years ago. The once popular Antminer S9 devices began to work at a loss.

Despite access to lower energy tariffs, in May public mining companies sold 100% of bitcoins produced per month. Although in the previous months this figure was held in the range of 25-40%.

The cost of equipment per Tirash of mining power fell below $ 60, which corresponds to the marks of January 2021. At the same time, the current hashpraice is about two times lower than the marks of one and a half year ago. Consequently, at the beginning of last year, the profitability of bitcoin mining was approximately twice as high.

A relatively high complexity indicator against the background of a reduction in bitcoin price only exacerbates the position of miners. In such a situation, the yield of production is reduced and the costs are increased.

It is not surprising that the shares of large mining companies fell in price. The quotes of most of these securities have sank by more than 50% since the beginning of the year. Promotions oriented to the “green energy” Stronghold Digital Mining and TERAWULF fell by about 90%.

Arcane Research Analyst Jaran Mellerud admits that the situation may worsen for public miners. The latter experience pressure in four directions:

  • Bitcoin price reduction -> falling income from cryptocurrency mining;
  • Growth of complexity -> more energy costs during mining;
  • Electricity tariff growth -> increase in production costs;
  • increase in interest rates on loans and reducing the interest of investors -> increasing the cost of capital.

“These four forces reduce the margin, reduce cash flows and create obstacles to attract capital,” Mellerud said.

The strongest will survive

The crypto industry is immersed in chaos: the effect of financial infection that began with the collapse of Terra set large centralized companies like Celsius and Three Arrows Capital on the brink of bankruptcy.

Bloomberg reported that some mining companies were faced with problems in servicing loans, which are provided by equipment for Bitcoin mining. According to the publication, $ 4 billion is at risk of default.

JPMorgan analysts believe that mining companies in need of liquidity in the third quarter are able to continue to exert a decreasing pressure on the Bitcoin course if the profitability of production does not improve. Public players today account for about 20% hashrate.

The Dynamics Mining hosting provider terminated the agreement with the supplier of equipment and services for mining Compass Mining due to unpaid accounts. The latter announced the resignation of CEO Witt Gibbs and financial director Jodi Fisher.

Jaran Mellerud compared the financial indicators of various public mining companies to identify the winners and losers in the struggle for survival.

According to him, the direct costs of Bitcoin production play a key role, since the operational cash flow of miners depends on them. The level of such expenses can also serve as a signal to turn off the devices due to their unprofitability.

“They [direct costs] depend on the price of electricity and energy efficiency of mining devices. There are other variables of costs, however, the share of electricity, as a rule, exceeds 80%. Therefore, I take into account the cost of electricity, ignoring other variable expenses, ”the expert explained.

The diagram below shows direct costs for eight public miners bitcoin mining.

The lowest indicator of Stronghold is only $ 3648. This means that the company has a high margin of cash flow even at the current price of bitcoin.

The company has two power plants. Stronghold Digital Mining converts coal waste to the energy used to extract bitcoin. Pennsylvania, where the company is based, appropriated the green status to this energy carrier along with hydropower.

“Their fuel is almost free. They also receive state subsidies to clean the coal. As a result, the cost of bitcoin production is the lowest in the industry, ”said Arcane Research analyst.

Argo also has a very low production cost – $ 3900. The presentation for investors says that the new company’s new object in Western Texas has access to electricity for $ 20 per 1 MW ∙ h. ARGO mining devices provides immersion cooling that can further increase their effectiveness.

Among the eight companies, Bitfarms has the highest cost of bitcoin production is $ 8500. According to Mellerud, the Canadian company does not have access to cheap electricity, and the effectiveness of the devices it has is small.

Relatively high costs are Hut 8 and Marathon – $ 7467 and $ 6765 for each bitcoin extracted, respectively.

Mellerud compared the operating cash flows of public miners. In his opinion, the cash plays a key role in the conditions of the bear market.

“Miners with the most significant operational cash flows are better than others can cover upcoming expenses like supplies of devices and debt service,” the researcher noted.

The schedule below illustrates monthly income, costs and operational cash flow.

The highest indicator of the operational cash flow in Core Scientific is $ 16.6 million. The company’s monthly income is $ 33 million, $ 16.3 million – direct costs.

Core Scientific – a large company. Its mining capacities generate 9.2 eh/s, providing significant income.

Argo has the lowest operational cash flow – only $ 4 million, but an excellent production profit (77%) due to low operational costs.

Some miners like Core Scientific have orders requiring payment for large batches of devices, the delivery of which is expected in the coming months. In addition, you need to serve loans secured by equipment.

“As the price of bitcoin and the cost of devices fall, miners have to make more security. Bitfarms, for example, had large loans with bitcoins as a collateral. A significant part of the cryptocurrency recently had to be eliminated, ”Mellerud said.

The diagram below presents the volume of upcoming payments of companies for the delivered miners.

Some companies have to make payments for tens of millions of dollars this year. For example, in Marathon this figure is $ 260 million. Such a high figure is due to plans to build a hashReit from 3.9 eh/s to 23.3 eh/s by the beginning of 2023.

“Marathon, as you know, very slowly puts into operation its machines. I do not expect that now they will accelerate significantly. Most of the machines, the supply of which is expected in 2022, will probably join thousands of other devices that are dusting in storage rooms, ”the expert shared his thoughts.

According to him, if Marathon cannot quickly connect the delivered cars, the upcoming payments will deprive the company liquidity.

Riot is also constantly expanding. The company will have to make payments in 2022 for $ 190 million. Its plans to increase the hash from 4.6 eh/s to 12.6 eh/s by January 2023.

“Unlike Marathon, Riot, basically followed the power buildings,” Mellerud shared observations. – Therefore, I am sure that the company will be able to connect cars and generate a cash flow. “.

According to him, the larger the company, the usually larger the amount of upcoming payments for equipment. To compare liquidity indicators, the analyst divided the amount of the upcoming payments of companies this year into cash flows from operating activities and presented the results in the form of a diagram below.

Marathon has not only the largest volume of the upcoming payments this year – the indicator is huge and in comparison with the current cash flow from operating activities, exceeding it by 6.2 times. The company may soon have to sell a significant part of the bitcoins in the open market.

The situation of Core Scientific is not so alarming – payments for payments exceed the cash flow by only 1.5 times. According to Mellerud, the company has always quickly commissioned new equipment.

Argo is the only public mining company whose cash flows from operating activities cover payments for equipment ordered in 2022. A significant role is played by its relatively conservative strategy for expanding capacities.

“Marathon and Riot will not be able to pay their upcoming deliveries at the expense of only their own cash flows. They will either have to attract more money, or use liquidity available on the balance sheet, ”the analyst suggested.

The following schedule presents the ratio of the debt of companies to their own capital (Debt-to-equity ratio, d/e).

Cleanspark and Riot have almost no debt – the ratio of D/E is only 0.1 and 0.2, respectively. These companies have an extremely low risk of bankruptcy.

Stronghold, on the contrary, is 4.7. For a public mining company, this is a sky -high indicator, Mellerud is convinced.

“Stronghold, such a high d/e ratio, not only because of the debt, but also due to the fact that the shares fell by 95% in relation to the historical maximum. As a result, the cost of capital was only $ 38 million, ”the analyst explained.

Core Scientific D/E ratio is not so high – 2.1. However, the company has a significant amount of debt obligations secured by equipment. The cost of the latter fell doubled in 2022.

It is possible that miners will continue to fall. This means that the cost of core collateral will also decrease.

The next diagram compares the coefficients of urgent liquidity (Quick Ratio). They are the ratio of the most liquid assets of companies to their short -term obligations.

For Bitcoin Mainers, the most liquid assets are money and their equivalents, as well as cryptocurrency stocks.

Marathon has an abnormally high urgent liquidity coefficient – 17.4. The company has huge bitcoin reserves, a large amount of money and minor current obligations.

However, as already mentioned, Marathon has extremely low cash flows in relation to the volume of upcoming payments for equipment.

Under the sign of unpredictability

June 11 on the state of Montana collapsed a hurricane. The element damaged the power station in Hardin, which feeds 30,000 miners of Marathon Digital Holdings.

The company said this equipment is more than 75% of their active capacities. It is expected that the device will be able to partially resume the operation in early July.

In April, the company announced the translation of miners from an object in Hardin to more stable energy sources to achieve carbon neutrality. It was assumed that this will happen in the third quarter. Now Marathon is evaluating the possibility of accelerating the process of moving.

Despite the available problems and financial imbalances, the company confirmed the commitment of the strategy of accumulation of reserves in the first cryptocurrency. Obviously, the management of Marathon firmly believes in the prospects for restoring the price of the first cryptocurrency.

“Of course, Bitcoin is less in terms of the dollar at the time of production, but if you believe in the ability of the price of the asset to grow in the long run, then earn more BTC is never bad,” said Charlie Schumacher Vice President of the company.

According to the top manager, a decrease in bitcoin prices will supplant ineffective miners from the market and reduce the complexity of production. This will allow you to get more digital gold to those who continue activities.


Most mining companies are going through difficult times, despite access to inexpensive electricity and the use of advanced devices. For many of them, operating cash flows are insufficient to pay for the upcoming deliveries https://gagarin.news/news/binance-clients-data-may-have-been-leaked/, the contracts for which are concluded during the times of super -religion and aggressive investment.

The current state of the markets makes it difficult to attract capital or borrowed funds, including secured by equipment. Some companies like Marathon may face a lack of liquidity and resort to sales of huge bitcoins reserves. In this case, the pressure of sales will increase, which is fraught with a new wave of panic in the market.

However, a crisis is not only problems, but also new opportunities. Companies with a stable financial situation and sufficient reserves will be able to buy up assets of participants who have left the game at a catchy price.

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