\n<\/p>\n
The phone just won\u2019t stop ringing, beams Zach Bradford, the CEO of Bitcoin mining company CleanSpark. The calls are from other mining bosses\u2014and they\u2019re panicking. After Bitcoin crashed and energy costs spiraled over the summer, mining firms that took out expensive short-term loans to buy hardware during the bull run now teeter on bankruptcy. Lenders are breathing down their necks, and the miners need quick cash. But only a handful of companies are buying mining rigs these days\u2014and Bradford\u2019s CleanSpark, which only took on a small amount of debt during the bull run, is one of them.\u00a0<\/p>\n
Having always sold 70% of the Bitcoin it mined using mostly cheap nuclear energy<\/a>, CleanSpark is in the enviable position of being rich enough to swoop in to buy box-fresh, top-of-the-line machines from near-bankrupt miners at sensible prices. At the start of the month, CleanSpark spent $5.9 million on 3,843 miners that Bradford says cost about $1,500 each\u2014down from $13,000 last November during peak Bitcoin mania. Crypto finance giant Grayscale also had hopes of buying miners on the cheap but then pulled back amid economic troubles at its parent company, while Bitdeer set up a $250 million fund<\/a> to exploit the crisis.<\/p>\n Meanwhile, the pressure has only continued to build at companies that bungled the Bitcoin crash. Core Scientific, America\u2019s largest Bitcoin miner, took on a debt-to-equity ratio almost 12 times greater than CleanSpark during the bull run and now risks bankruptcy if it doesn\u2019t raise money by the end of the year, having lost $1.7 billion in 2022 alone<\/a>. Another miner, Argo, told investors it\u2019ll shut down if it can\u2019t sell miners it hasn\u2019t even taken out of the box. Another, Iris, defaulted on a $108 million loan.\u00a0<\/a><\/p>\n And there is the state of Texas, whose bold experiment to welcome Bitcoin miners to help balance the power grid risks turned into a Lone Star State-sized disaster. In the wake of rising energy prices and debt burdens among miners, one state executive bemoaned<\/a> a situation where \u201ctransformers, switch gears, and mobile data centers and containers for mining\u2026are just sitting there.\u201d<\/p>\n So how exactly did this mess develop? One would expect that miners, who had to wait months for out-of-stock rigs to arrive, would have played it safe in a market known for volatility. But Guzman Pintos, the cofounder of mining company Luxor, says that these mining companies were incentivized to load up with debt to \u201cpump their stock.\u201d\u00a0 The premise is simple enough: The more mining rigs a company operates, the more Bitcoin it can produce, the greater its revenue, the higher its stock\u2019s value\u2014so long as Bitcoin\u2019s price continues to fly.<\/p>\n During the bull run, publicly traded Core Scientific increased mining income by 3,440% to $210.8 million, having raised its Bitcoin mining power by 4.5 times to 13.5 EH\/s at the end of 2021 (EH\/s is a measure of \u201chash rate\u201d or deployed computing power). Bitcoin miner Hut8 added 9,592 machines in the first quarter of this year, increasing its capacity by nearly a third. The sudden increase in capacity \u201cwas insane, it was ridiculous\u2014but that was what public markets were paying for,\u201d says Pintos.<\/p>\n Miners used their debt to stretch their money even further, holding onto Bitcoin they produced and speculating on its worth. To cover their spiraling costs, Pintos says some miners collected premiums on futures contracts. He says industry financiers were practically \u201cgiving money away,\u201d relaxing the amount of collateral required for loans and even accepting deposits of Bitcoin while the cryptocurrency\u2019s price continued to soar.<\/p>\n And then the party came to an abrupt end. For the riskier miners, things took a turn for the worse when energy prices rose over the summer and Bitcoin crashed. \u201cNobody was expecting both,\u201d says Pintos. Electricity costs for Argo\u2019s Texas operation were almost three times the average prices for August<\/a>, owing to an overwhelmed grid and an energy agreement that priced electricity at market rates.\u00a0<\/p>\n Pintos estimates margins dropped from 70% to 20%\u2014not nearly enough to pay for energy costs and repay loans.\u00a0\u201cThe financial return on investment became almost impossible for miners,\u201d says Dan Ives, a managing director of Wedbush Securities. \u201dIt\u2019s been a near-term gut punch to the industry\u2014no different than the burst of the dot-com bubble.\u201d<\/p>\n Indebted miners are now in a tight spot. For those who held Bitcoin mined during the bull run, selling it now will fetch a quarter of its all-time high, while mining rigs, whose prices strongly correlate with Bitcoin\u2019s own price, have collapsed in value. Pintos says secondary sales of unused individual miners are cheaper than the listing price of their wholesale manufacturers\u2014and they even come with the same warranty. Stock prices of all mining companies have almost universally plummeted as soaring operating costs squeeze the pulp from their margins.<\/p>\n Lenders now hold all the power. Financiers have already begun to repossess mining equipment\u2014lender NYDIG took back 26,200 machines from miner Stronghold. Generate Capital has bought<\/a> a $5 million stake in its bankrupt debtor, mining firm Compute North. Compass Point, an investment company, wrote in an investment note that lenders should lower the monthly payments they extract from miners to stop them from returning rigs and using the money to buy new computers at a lower price.<\/p>\n Still, Pintos says the worst is over. As miners unplug, the Bitcoin blockchain will make it easier to mine new coins, thereby increasing the revenue of the miners who survive. But if Bitcoin\u2019s price rises, the cycle of short-term loans and cascading crashes may continue once more. CleanSpark\u2019s Bradford thinks that none of the current roster of lenders would issue longer-term debt\u2014with repayment terms of at least three years, and ideally five to seven\u2014that could prevent another liquidity crisis. But it\u2019ll be years until that happens, he says. After the collapse of FTX shakes the industry to its core, it\u2019ll take a long time until institutional lenders trust crypto again.<\/p>\n<\/div>\n Our new weekly Impact Report newsletter examines how ESG news and trends are shaping the roles and responsibilities of today\u2019s executives. Subscribe here<\/a>.<\/p>\n<\/div>\n\n The phone just won\u2019t stop ringing, beams Zach Bradford, the CEO of Bitcoin mining company CleanSpark. The calls are from other mining bosses\u2014and they\u2019re panicking. After Bitcoin crashed and energy costs spiraled over the summer, mining firms that took out expensive short-term loans to buy hardware during the bull run now teeter on bankruptcy. Lenders …<\/p>\n","protected":false},"author":1,"featured_media":39243,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[161],"tags":[],"_links":{"self":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts\/39242"}],"collection":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/comments?post=39242"}],"version-history":[{"count":0,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts\/39242\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/media\/39243"}],"wp:attachment":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/media?parent=39242"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/categories?post=39242"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/tags?post=39242"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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