Bitcoin miners see earnings drop 80% from peak. Can they all survive?
Hello, welcome back to Distributed Ledger, our weekly crypto newsletter that hits your inbox every Thursday. I’m Frances Yue, crypto reporter at MarketWatch. I’ll be walking you through the latest and greatest in the digital resource world this week.
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Crypto in a flash
Bitcoin BTCUSD,
rose about 5.3% over the past seven days, trading at about $20,131 on Thursday, according to CoinDesk data. Ether ETHUSD,
added 3.6% over the seven-day stretch to around $1,365. Meme token Dogecoin DOGEUSD,
rose 9% while another dog-themed token, Shiba Inu SHIBUSD,
traded 3.1% higher from seven days ago.
Cryptometrics
| Biggest winners | Price | %7-day return |
|
Tokenize Xchange |
$10.89 |
40.5% |
|
Maker |
$848.63 |
16% |
|
Elrond |
$54.74 |
16% |
|
Polygon |
$0.84 |
12.8% |
|
Stellar |
$0.12 |
10.8% |
| Source: CoinGecko as of October 6 |
| Biggest losers | Price | %7-day return |
|
Celsius network |
$1.15 |
-21.8% |
|
Chillies |
$0.22 |
-10% |
|
IOTA |
$0.27 |
-8.9% |
|
Synthetix network |
$2.28 |
-6.9% |
|
Lido DAO |
$1.52 |
-6.2% |
| Source: CoinGecko as of October 6 |
Miners under pressure
It has been a difficult year for bitcoin miners. And there is no sign of a reversal.
Energy prices rose this year, increasing costs for miners. US electricity prices in August rose the most since 1981, rising 15.8% year over year, according to the US Bureau of Labor Statistics.
Meanwhile, bitcoin prices fell nearly 60% so far this year, leading to disappointing earnings for miners.
What’s worse, Bitcoin’s hashrate, or the total computational power that secures the network, has reached an all-time high. That means bitcoin’s mining difficulty, which automatically adjusts roughly every two weeks based on the hash rate, will increase. In accordance an estimate from bitcoin mining company Braiins, October 10, miners will prepare for the biggest difficulty increase since May 2021.
In the face of these challenges, miners have seen their earnings drop by an average of 81% from a peak in October 2021, analysts at Arcane Research wrote in a recent note. Most public miners have seen their gross margins drop to a 30%-40% range from an 80%-90% range, according to the Arcane analysts.
In September, Compute North, one of the largest operators of data centers for crypto miners, filed for bankruptcy in September. Nasdaq-listed cryptominer Marathon Digital MARA,
said Thursday that it has more than $80 million in exposure in Compute North. Compute North and Marathon Digital did not immediately respond to requests for comment.
Why has hashrate kept going up in a bear market?
There is a “long lead time” for the purchase of mining machines, according to Sam Doctor, head of strategy at BitOoda.
That’s why in 2021, when bitcoin prices continued to climb and the Federal Reserve maintained its easy monetary policy, “many miners asserted themselves,” said Sami Kassab, an analyst at Messari. “The public miners wanted to compete with others and started raising capital and equity,” Kassab noted.
In an effort to expand their operations, bitcoin miners ordered billions of dollars worth of machines in 2021. “Many of these purchase orders were placed last year, and due to supply chain issues, they are just starting to get to miners now,” noted Kassab.
As miners seemed to continue operating but also faced debt obligations, they connected to the new machines, contributing to the increase in hashpower.
What’s next for miners?
If bitcoin prices fall below $17,600, the annual low hit in June, there will be further pressure on miners, Kassab warned.
“You will have some of the weaker miners go bankrupt and they may have to sell their machines to some of the stronger miners,” Kassab said. Even stronger miners will come under pressure, “and most likely they will just have to keep selling bitcoin held on balance to finance their operations,” Kassab said.
BitOoda’s doctor believes bitcoin prices are already at a level where bitcoin miners will be forced to consolidate. Some existing miners may merge, or distressed investors will come in to buy more companies or take some public companies private. “There are obviously different ways this could happen,” the doctor said.
In September, crypto billionaire Jihan Wu’s bitcoin mining company Bitdeer set up a $250 million fund to buy distressed assets from other miners, Bloomberg reported. Bitdeer did not immediately respond to a request for comment.
Kim Kardashian’s SEC fine
On Monday, Kim Kardashian agreed to pay $1.26 million to settle charges by the Securities and Exchange Commission that she illegally promoted a cryptocurrency called EthereumMax on Instagram.
The SEC claimed that the influencer failed to disclose that she was paid $250,000 by the token’s issuers to promote it, even though the post contained the hashtag ‘#ad’ at the bottom, MarketWatch’s Chris Matthews reported.
“Securities laws require you to disclose not only that you are being paid, but the amount and the nature of the payment,” Gensler told CNBC on Monday.
This is not the first time the SEC has targeted celebrities who promoted cryptocurrencies. Boxer Floyd Mayweather, musician DJ Khaled and actor Steven Seagal have all been fined after the SEC said they illegally designated cryptocurrencies, Gensler noted.
Crypto companies, funds
Shares of Coinbase Global Inc. COIN,
rose 1.2% to $73.82 on Thursday, and was up 19.1% over the last five trading sessions. Michael Saylor’s Micro strategy Inc.
MSTR,
shares fell 0.4% on Thursday to $241.30, while they are up 13.9% in the past five days.
Mining company Riot Blockchain Inc. RIOT,
shares fell 0.8% to $7.19 on Thursday and were up 1.6% over the past five days. Shares of Marathon Digital Holdings Inc.
MARA,
advanced 1.9% to $13.08, while up 21.5% in the past five days. Another miner, Ebang International Holdings Inc. EBONY,
so shares fell 4.6% to $0.40 on Thursday, while down 1.7% over the past five days.
Overstock.com Inc.
OSTK,
the stock rose 0.7% to $26.35. Shares traded 7.4% higher during the five-up period.
Shares of Block Inc.
SQ,
formerly known as Square, fell 0.4% to $61.92 and was up 10.7% for the week. Tesla Inc. TSLA,
shares fell 0.5% to $239.78, down 10.6% in the past five days.
PayPal Holdings Inc.
PYPL,
rose 0.6% to $94.38, a 6.4% gain in five sessions. Nvidia Corp.
NVDA,
shares were down 0.2% at $131.83, on top of an 8% gain in the past week.
Advanced Micro Devices Inc.
AMD,
shares rose 0.4% to $68.27 on Thursday, up 6.4% from five trading days ago.
Among crypto funds, ProShares Bitcoin Strategy ETF
BITO,
eased 0.2% to $12.39 on Thursday, while its Short Bitcoin Strategy ETF
BITI,
rose 0.4% to $37.02. Valkyrie Bitcoin Strategy ETF
BTF,
slipped 0.5% to $7.73, while VanEck Bitcoin Strategy ETF
xbtf,
cut 0.5% to $19.59.
Grayscale Bitcoin Trust
GBTC,
retreated 0.6% to $11.90.
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