It’s a perfect storm for bitcoin mining companies in 2022: interest rates increase the cost of capital, bitcoin mining becomes less profitable as the hashrate rises sharply when the price of bitcoin falls and the company’s financial management plan Mining fails them.
The result of the storm shows that the stock value of the five largest social miners by hashrate. In 2022, Core Scientific ($CORZ), Riot Blockchain ($RIOT), Bitfarms ($BITF), Iris Energy ($IREN) and CleanSpark ($CLSK) sold down 99%, 85%, 91%, 92% and 79 %, respectively.
Ooh. No, it does not mean that Bitcoin is dead or that Bitcoin (BTC) is destined for $0. I actually wrote the opposite. This does not mean that state-owned mining companies will disappear. What this really means is that we need (and are doing) a bit of restructuring and restructuring that will leave the mining industry better than ever.
What Happened First?
In recent years, some miners have kept their bitcoins mined, preferring instead to pay for services with other companies’ capital. This works best when two things are true:
The price of bitcoin is rising, so the number of people who want to invest in bitcoin so as not to forget something is high.
The cost of capital is cheap, so the number of people who want to invest in Bitcoin for reasons of yield is high. Both things have been true for the past two years. So we have this weird situation where bitcoin mining companies, mine bitcoins, don’t make money clearly from mining bitcoins. Instead, they made money by supporting bitcoin mining.
That’s a bit of an exaggeration, but really quite a bit. In our imaginary world, a bitcoin mining business makes money like this: the business owns a bitcoin machine that mines bitcoin, and the business buys some of that bitcoin. mining money to pay the expenses necessary to run a business.
In our beautiful world, a bitcoin mining business makes money like this: the business owns a bitcoin mining machine that mines bitcoins and the business takes capital from debt or shares to use Pay the necessary fees to do business. I’m not saying companies do that exactly, but there are mining companies like Marathon Digital who fill all the bitcoins they’ve mined in the last 26 months on their wallets, instead of selling some ‘to do it to pay for the business.
Honestly, that makes no sense to me. I stand by the idea that the company should strive to operate as a going concern for the long term – not depending on the capital market – and earn more money than it costs to get the money . Otherwise, this company should not exist.
So when the wacky world goes where:
- the price of bitcoin goes down,
- the cost of capital goes up, and
- bitcoin mining becomes more competitive, you could be in for a bad world.
Well, all those things happened in 2022, so the recent news about Core Science’s lack of funding, the complete restructuring and capital injection to save Argo from bankruptcy, and the resignation of the CEO of Bitfarms.
So What’s Better Now?
We know the public mining industry is struggling, but amidst all the pessimism, there are (definitely) reasons for optimism. See, in theory, the mining company will be mine when it’s profitable and not mine when it’s not profitable. Mining machines operated by these companies can be turned on and off easily.
But in practice, miners don’t close and raise based on daily movements in bitcoin or electricity prices. Instead, miners are constantly mining through the market exchange.
And because of that, it’s important to make some kind of money management plan that goes beyond “holding all the bitcoins”.
This proposal will include some exchange of some mined bitcoins to support services. Because eventually the price of bitcoin may start to fall or the price of electricity may start to rise. Or both.
Investors in the public market appreciate both the predictability of the financial system and the potential for upside speculation. Public bitcoin mining companies have the latter in spades, but the former is in short supply. A good financial management solution should be expected to reduce the unfair profits associated with the markets that control bitcoin mining companies.
So, whatever happens now, we should at least hope that mining companies survive this storm and market disruptions to make changes. some. I think the big public mining companies will have to look at their “keep bitcoin mined” strategy and this should help them to be successful in the future.
Of course, assuming that the miners learn about it.