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Latest public mining developments
After writing about the potential for public miner capitulation and covering Core Scientific’s potential bankruptcy path, there has been a wave of miner announcements and developments showing industry-wide risks taking more shape. The main risk is the miners’ accumulated debt and the lack of cash flow to pay the interest rate on that debt as profit margins shrink. The other risk is the hash rate (ASIC mining machines) that has been used as collateral to secure this debt financing.
Public miners in general continue to underperform bitcoin well so far this year. That’s not a new trend, but now, as miners start to drop and survivors emerge, the yield gap is starting to widen greatly. Miners on the brink of sinking are down more than 90%, while the “strongest” miners chosen by the market are more in the 60-70% drop range.
Starting with Core Scientific, there is a long list of companies that are owed money, including BlockFi, NYDIG, and Anchor Labs. In total, creditors are owed around $1 billion and even MassMutual Barings (a security firm). investment owned by Mutual Life Insurance Co.) is on the short list.
Argo Blockchain is one of the bottom ones, now down 93.23% this year. They released the biggest mining news of the week after announcing that a planned $27 million fundraiser fell through. Earlier this year, NYDIG agreed to a $70.6 million loan with Argo. Argo also used some of its bitcoin holdings in August to reduce your BTC-backed loan obligations from Galaxy Digital as well.
Iris Energy stands out in a financing update this week that the company is “it is currently able to generate an indicative monthly gross profit of $2 million on Bitcoin mining, compared to the required monthly principal and interest payment obligations of $7 million.” After taking out a $71 million loan from NYDIG, secured by ASIC machines for one of her outstanding loans, and at risk of needing a debt restructuring, Iris has nearly 36,000 machines that can change hands fairly quickly. The company would default on these loans unless they can find a new deal by November 8.
Stronghold Digital Mining closed this week at its debt restructuring agreement with NYDIG, delivering a fleet of 26,200 miners in exchange for the settlement of a debt of 67.4 million dollars. Stronghold also extended another tranche of debt to be paid in 36 months instead of 13 to buy more cash. The moves have been a strategic move to “quickly deleverage our balance sheet and improve liquidity.”
CleanSpark, which has been in a place of growth and able to buy ASIC at lower prices recently, ended up selling more of his bitcoin holdings (mined 532 BTC and spent 836) last month to support growth and operations. Although many top miners still hold their HODL strategies and bitcoin balances, strong miners will leverage those positions for growth opportunities or funding trades when absolutely necessary.
TeraWulf, another bitcoin miner that is down 92.38% year-to-date, has a relatively high debt-to-equity ratio compared to other miners (86%) and has $120 million in debt to start paying off in the spring of 2023 at an interest rate of 11.5%.
As the largest private lenders like BlockFi and NYDIG do not disclose how much mining debt is on their balance sheets, it is impossible to know for sure how exposed some of these lenders are to the broader mining industry bankruptcy risk on the horizon. These loans may be a reasonable part of broader financial activities and well equipped to manage default risk, but it is a dynamic worth highlighting and better understanding as we expect more miners to face the pressure of debt default and /or restructuring in the coming months. .
An opinion from the CEO of Marathon Digital Holdings, Fred Thiel, ballparks that Around 20 public miners could be at risk of going bankrupt in what he sees as a perfect storm for the industry. There is no doubt that the largest and most well-positioned miners are looking for potential and favorable acquisition deals to emerge fairly soon. Like any industry before it, major industry consolidation is inevitable and public. bitcoin mining it seems ready to go through the next phase of its life cycle. We are likely moving into a world where there are only a few major bitcoin mining giants with a handful of much smaller miners behind them.
Similarly, it is entirely possible that as this cycle moves from the lower right to the lower left quadrant, cash-rich energy producers both publicly and privately will begin to pick up ASICs to deploy in preparation for the next bull run.
The biggest risk inherent in the bitcoin market today remains weak players hanging by a thread below the surface. The lack of significant price volatility in this $20,000 range is certainly encouraging from the point of view of buyers and sellers looking for temporary equilibrium. But as the frequency of miner issues continues to rise, coupled with the possibility of more pool-based leverage in the market, the ultimate pain is unequivocally less for industry participants. Most of the selling has taken place with bitcoin now at $20,000, but one has to wonder if the fringe buyer is big enough to stop potential selling pressure on the horizon.
We suspect pressure is starting to mount on crypto lenders that survived the summer contagion, due to the increasing hurdles certain miners face in this environment.