Bitcoin mining stock price fall
Higher production costs due to increased energy costs
Liquidating crypto reserves for operational cash flow
Hardly a day goes by without bad news for the crypto market. Since the Terra/LUNA debacle and the price collapse of Bitcoin, Ethereum & Co., some companies, such as the crypto exchange Voyager Digital, have gone bankrupt.
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Due to the financial difficulties of the multi-billion dollar hedge fund 3AC as lender, Voyager’s insolvency could no longer be stopped.
Numerous Bitcoin mining companies have also thrown more Bitcoin from their stocks onto the market in the last month to cover the running costs. But what is it that puts the miners under so much pressure?
Mining in Brenmarkt
According to a study by arcane research, there are currently four factors in particular that are threatening the mining of the crypto bedrock in the current market: The fall in the price of Bitcoin, the increased energy requirements for mining, rising energy prices and higher capital costs due to rising interest rates.
Survival of the fittest: Which public bitcoin miners are the best prepared to survive the bear market?https://t.co/OASU3yKfIO
– Arcane Research (@ArcaneResearch) June 27, 2022
As of this writing, the stocks of numerous miners have already fallen by more than half. In the case of Stronghold with a minus of 85.99 percent and TeraWulf with a loss of 90.17 percent (closing prices on July 8th, 2022) it is even around 90 percent since the beginning of the year. According to the study, the recently very successful company Marathon could also be dependent on the liquidation of its reserves.
According to the study, bitcoin miners’ cash flow has fallen more than 80 percent since the November 2021 peak, when bitcoin mining was highly profitable. Due to the massive increase in costs, profit margins have now collapsed. The market situation also makes it very difficult to raise capital. Investments in the billions required for technology can no longer be obtained, or only with difficulty, and loans for investments already made during the upswing are due. The logical consequence is the insolvency of individual companies or the liquidation of assets at a drastically reduced price.
Who has the best chance?
The arcane research study was published under the title “Survival of the fittest”. So who are the companies that are being credited with the best chance of survival? The production costs, the operating cash flow and the balance sheets were examined.
In terms of production costs, Stronghold and Argo Blockchain are ahead because they source energy cheaply and the energy efficiency of their systems is rated as high. Bitfarms and Hut8, on the other hand, score the worst on mining costs.
In terms of largest cash flow, Argo and Core Scientific come out on top. With its relatively small cash flow, Argo has the highest margin of around 77 percent, while Core Scientific has a very high cash flow due to its enormous size.
Argo will probably be the only one of the miners examined that can pay for the investments made from operating cash flow and take advantage of any opportunities that arise from the lack of liquidity of the other miners.
The hardware investments to be considered are those that were made during the upswing to increase the hash rate and will now be due in the course of the year. For example, Bitfarms was recently forced to sell bitcoin reserves in order to be able to service maturing bitcoin-collateralized loans for new machines.
Marathon has the highest outstanding debt at $260 million, also as measured by the company’s aggregate operating cash flow. Although Marathon has a high level of liquidity, this threatens to disappear if the machines are not put into operation shortly after delivery. The miner could therefore be forced to liquidate their bitcoin reserves. The situation is similar at Riot Blockchain, which has continuously increased its hash rate, but cannot finance the investments for the expansion with the liquid funds either.
In terms of company balance sheets, arcane ranks Marathon and Riot Blockchain as the strongest. Stronghold and Core Scientific, on the other hand, are highly indebted with little equity and little collateral.
Bitcoin reserve liquidation almost inevitable
With heavy hardware investments to boost hashrate, most miners will be forced to liquidate holdings in 2022. According to the arcane research study, Argo can clearly be identified as the winner of the Brenmarkt and Marathon as the loser.
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