Bitcoin miners are beginning to emerge from brutal crypto winter

The Bitcoin mining industry seems to be getting back on its feet after a long crypto winter of major bankruptcies and fire sales.

Although the mining economy has only marginally improved as bitcoin trades above $20,000, capital is starting to flow back into the sector.

“This shows that investor sentiment is still largely driven by BTC price action rather than mining fundamentals,” said Ethan Vera, CEO of Luxor Technologies, a crypto mining services firm.

Meanwhile, lower energy costs in recent months have also given miners some breathing room.

Shares of publicly traded bitcoin mining companies have outperformed bitcoin this year. A composite index of public mining rig manufacturers, foundries and miners compiled by Luxor is up 52% ​​so far this year, compared to bitcoin’s 44% gain.

In terms of percentage growth, the biggest winner in public markets has been Core Scientific (CORZQ), which is still trading over-the-counter amid Chapter 11 bankruptcy. The value of its equity grew 693% in 2023, according to stock information platform TradingView, but the stock still trades at around 30 cents. It is followed by Digihost, whose shares have risen 225%. Shares in Cipher Mining (CIFR), DMG Blockchain (DMGI), Bitfarms (BITF), Iris Energy (IREN) and Bit Digital (BTBT) have all at least doubled.

Meanwhile, when it comes to realized hashrate, a measure of miners’ competitiveness on the Bitcoin network, CleanSpark (CLSK) leads the pack, with 224% year-over-year growth, followed by Bit Digital (BTBT), Bitfarms, and Riot Platforms ( RIOT). ) the following. Hashrate is a measure of computing power used to mine new bitcoin blocks and validate transactions on the network.

The fourth quarter of 2022 was and may be the worst in the market cycle, according to investment bank HC Wainwright analyst Kevin Dede. He expects the upcoming earnings reports to show that the quarter was a trough, making it the last step in the business cycle before a potential recovery.

With some major players out of the game, or in Core Scientific’s case on the bench, due to bankruptcy proceedings, there are many opportunities for other companies.

Smaller firms are also seeing interest from investors in 2023. Saber56 raised $35 million to build 150 megawatts of infrastructure, and mining machine supplier Minerset is preparing its merger with BlockQuarry, which also canceled $5 million in debt and raised $1.3 million in new capital .

Luxor’s Vera sees Hut 8 (HUT) and US Bitcoin Corp., which recently merged, as well as Galaxy Digital (GLXY.CA) as “positioning itself to take good advantage of the next bull run.” He also noted that “a number of new startups are finding unique ways to build businesses in the space such as Block Green, Giga Energy and 360 Mining.”

Elsewhere, crypto lender NYDIG has access to more than 11.6 exahashes per second of machines due to various loans that miners have either restructured or defaulted on. If NYDIG were to bring all these machines online, it would be a miner the size of Marathon Digital (MARA), one of the largest publicly traded miners. The list of NYDIG’s borrowers includes Greenidge, Iris Energy, Core Scientific and Stronghold Digital Mining.

NYDIG declined to comment.

Don’t call it a comeback

Despite the rally in listed mining stocks, fundamentals are a far cry from what investors saw back in the heady days of 2021.

“While that [the gains in the price of bitcoin] certainly gives some breathing space to struggling miners, it is still too early to confidently call an industry recovery, says Juri Bulovic, head of mining at Foundry Digital. Foundry is owned by CoinDesk’s parent company, Digital Currency Group.

The bitcoin network’s hashrate has grown by a third since the start of 2023, and the difficulty of mining a bitcoin block hit a record high of one in 43.05 trillion on February 24. However, as network difficulty increases, miners’ profitability will drop. The profitability of mining bitcoin, as measured by Luxor’s hash price, fell back to January levels when the difficulty increased on February 24.

It is possible that miners may have found some relief this year, but with high inflation and interest rates still lurking in the background, miners are not out of the woods yet. The miners must now implement risk aversion strategies to survive the remainder of the bear market.

Neil Galloway, COO of Rebel Mining, warns that “we have a long way to go to get back to where we were” and therefore “it is critical that miners remove additional risk” and “collaborate with a host that is financially solvent , owns and operates the underlying infrastructure and has the systems in place to monitor and manage things properly.”