Cryptoverse: Bitcoin miners escape the bear trap

Vulcan Infrastructure and Power

18/04/2023 06:10

(Our weekly analysis of the wild world of cryptocurrencies)
    By Medha Singh and Lisa Pauline Mattackal
       April 18 (Reuters) - Beleaguered bitcoin miners are
finally feeling the spring sunshine after a cold, hard crypto
winter.
    The power-hungry companies that pump new bitcoin into
circulation have been thrown a lifeline by the cryptocurrency's
rally to above $30,000 this year, which has conspired with
falling electricity prices to boost their profitability. 
    The 30-day average of mining revenues has risen to $27.34
million a day, the highest level since last June, according to
data from Blockchain.com. 
    That's a relief for miners that struggled to service large
debt burdens as revenues languished between $15 million and $21
million for most of the second half of 2022. They're still some
way off a peak of $61.2 million hit in November 2021, though. 
    "Many public miners were on the brink of bankruptcy at the
end of last year. At the current bitcoin price, these companies'
cash flows have substantially improved and most of them should
have no problem paying their obligations," said Jaran Mellerud,
analyst at bitcoin mining services company Luxor. 
    Miners' debt-to-equity ratios now look much healthier, said
Mellerud, adding that many companies had restructured and paid
down debt over the past few months. 
    Marathon Digital Holdings' debt-to-equity ratio has dropped
to 0.5 from 2 since the start of this year, for example, while
Greenidge Generation Holdings'  GREE.O  has dropped to 5.8 from
11.7, according to data from Luxor. 
    The spring thaw has seen investors flock back to publicly
traded crypto mining companies; Among the biggest players,
Marathon  MARA.O  and Riot Platforms  RIOT.O  have seen their
share price more than triple this year, while the Valkyrie
Bitcoin Miners ETF  WGMI.O  is up 162% and Greenidge has gained
137%. But they've all still lost money since early 2022. 
    Bitcoin mining is the process by which a network of
computers validates a block of transactions on the blockchain.
Miners are rewarded with bitcoin for completing a block,
competing against other miners by solving intricate maths
puzzles with energy-intensive computing systems, meaning
electricity comprises a significant chunk of their operating
costs. 
    Declines in power prices, particularly in the U.S., have
eased pressure on company margins, according to analysts at
BTIG, who said the electricity cost for producing one bitcoin
has fallen about 40% from the end of last year. 
    That means that despite both the computing power available
on the network and mining difficulty rising steadily to new all
time highs - meaning it should take more power to mine one block
- the 30-day average cost-per-transaction for miners has fallen
to its lowest level since September, Blockchain.com data showed.
    OUT OF THE WOODS? 
    Miners can't get too cozy though, given their fortunes are
tied to bitcoin's capricious price trajectory. 
    "If we see bitcoin top out and consolidate, the run-up in
miners may do the same, we expect to see more volatility as we
head into summer," said Kevin Kelly, head of research at Delphi
Digital, although he sees a favorable environment for crypto
persisting through 2023, compared with last year. 
    Despite improvements in their balance sheets, many miners
still have plenty of debt to pay down and are still struggling,
said Luxor's Mellerud. 
    "The bitcoin price increase has bought these companies time,
but it would be detrimental for these companies if it were to
fall back down to $20,000," he said. 
    Most companies are focusing on debt reduction rather than
spending on new equipment, BTIG said, even as the estimated cost
of new mining rigs has dropped around 69% since the end of 2021.
    There are some exceptions however, with CleanSpark  CLSK.O 
taking advantage of falling prices to purchase of 45,000 new
mining rigs, which would nearly double its computing power. 
    A rapid rise in power prices or a fast fall in bitcoin could
usher in a new cold spell. For now though, the sun is shining. 
    "I don't think we're completely out of the woods, but I
think the worst is behind us," said Marcus Sotiriou, analyst at
digital asset broker GlobalBlock  BLOK.V .
    

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Robust growth in revenue    https://tmsnrt.rs/3An4f0p
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 (Reporting by Lisa Pauline Mattackal and Medha Singh in
Bengaluru; Editing by Vidya Ranganathan and Pravin Char)
 ((LisaPauline.Mattackal@thomsonreuters.com;))