Bitcoin Risks Big Selloff As Miner Continues

Between depressed BTC prices, declining value of mining rigs, rising electricity costs, and a skyrocketing hash rate, Bitcoin mining is facing difficult market conditions.

Tough times for Bitcoin miners

Bitcoin miners have trouble staying afloat.

Bitcoin mining company Argo Blockchain proposed in a statement to Bloomberg Today that it may close down soon, as it risks becoming “cash flow negative” in the short term. Argo attempted to raise funds through a $27 million stock sale, which reportedly fell through, and has resorted to selling 4,000 mining rigs for $5.6 million to buy time. The announcement sent Argos’ stock, ARBK, down 52.28% on the day; It is currently traded for $0.94 – a 95.48% drop from the November 2021 high of $20.95.

Argo Blockchain is not the only miner in trouble. Last week, Core Scientific shared a similar statement, says it ran into liquidity problems and that it could face bankruptcy. Among other things, the company said it would have to stop all of its debt financing payments. Core Scientific was the third largest publicly traded Bitcoin mining company in July. At the time the market value stood to approximately $525 million; as of today, however, this figure has shrunk to $70 million.

It’s been a tough year for Bitcoin miners. BTC is down 70% in 2022, meaning that mining has had to contend with a severe cutback to its most important source of income. The drastic loss of income has been compounded by increased expenses due to skyrocketing energy costs. Mining rigs, especially ASICS, have also seen a drop in price value (by 70% or 80%, according to Reflexivity research), which further prevents Bitcoin miners from raising capital against their holdings. In addition, the Bitcoin hashrate – which measures the amount of computational power needed for miners to produce blocks – keeps meeting new heights, meaning mining has never been as competitive as it is today.

How Bitcoin may be affected

Major mining companies struggling to stay afloat is not a good sign for the market. A good scenario would be that Argo Blockchain and Core Scientific turn out to be the least efficient mining operations, leaving room for competition to replace them. However, it is possible that other miners are experiencing similar difficulties and are looking for ways to survive. An alternative could be to dump their BTC holdings.

In fact, this is exactly what happened in November 2018. After five months of trading between around $8,000 and $6,000, BTC finally collapsed and plunged 50%, to around $3,000, due to miner capitulation. Some Bitcoin analysts have warned that a similar selloff could happen this time, as the top cryptocurrency has been struggling in the $18,000-$24,000 range for months while its hash rate continues to rise. This means that mining is becoming increasingly unprofitable.

Argo Blockchain and Core Scientific are unlikely to pose a threat to the markets as the two companies appear to have already sold significant portions of their Bitcoin holdings. Nuclear science announced in July that it had sold over 7,202 BTC last month, bringing its holdings down to 1,959 BTC. The company now has 24 BTC, per Bloomberg.

Nevertheless, Bitcoin Magazine PRO analysts claim publicly owned Bitcoin mining companies still hold over 34,040 BTC worth about $694 million, and that these operations only account for about 20% of Bitcoin’s hashrate. Data from Bitcoin Treasuries seems to support this estimate: according to the site, the top three mining companies – Marathon Digital Holdings, Hut 8 Mining Group and Riot Blockchain – currently have a combined 27,802 BTC (worth around $567 million). If the numbers are correct, these mining operations could cause significant selling pressure if they face similar difficulties as Core Scientific or Argo Blockchain.

Disclaimer: At the time of writing, the author of this piece owned BTC, ETH and several other crypto assets.