Bitcoin miners stung by price drop, but focusing on technology

One of America’s largest publicly traded crypto mining companies showed how well it managed in the tough months of April to June. It was mostly not good.

Why it matters: Mining companies are considered the last line of defense, often the last to sell in the midst of recessions, because their business models withstand the volatile fluctuations of the digital assets they mine with powerful computing equipment. But they have recently shown signs of stress.

Driving the news: Marathon Digital Holdings said yesterday that losses widened in the second quarter to $191.6 million, largely due to a $127.6 million write-down of its bitcoin holdings as prices fell 56% in the period.

• But it increased its bitcoin holdings to 10,127 BTC, producing 707 in the quarter – an increase of 8% from the same period last year, but a decrease of 44% from the previous three months.

Details: It suffered from operational challenges related to rising energy costs, maintenance issues and weather affecting production.

• The rigs at Marathon’s Hardin facility in Montana had maintenance issues and were subsequently taken offline due to a storm.
• The company also experienced delays via its host Compute North in Texas.

By the numbers: Marathon reported revenue of $24.9 million in the second quarter, down about 15% from the prior quarter of $29.3 million.

• Cost of revenue – energy, hosting and other expenses – rose to $16.7 million compared to $4.1 million in the prior year.
• The firm also recorded a total expense of $207.3 million related to its investment fund holdings and depreciation of its digital currencies.

The big picture: But the worst may be in the rearview mirror, as the mining giant continues on its ambitious path to increase its hash rate to 23.3 exahash per second, more than 5 times its late April processing power of roughly 4 exahash (a miner’s hashrate). is a measure of efficiency).

• Fred Thiel, Marathon’s chairman and CEO, said during the company’s conference call that the outlook for the company’s business looks better.

What others say: In general, the economics of mining have improved recently, Chris Brendler, an analyst at DA Davidson, told Axios.

• “Bitcoin prices are bouncing, and growth in network hash rate has shut down a bit,” says Brendler, adding that publicly traded companies of Marathon’s size still appear to have financial flexibility — a key concern amid the onset of crypto winter.
• “The capital markets are not completely closed to these people,” he says.

What they say: “Given the foundation we laid during the quarter and the progress we’ve made since, we are optimistic that Marathon’s operational and financial positioning is improving,” Thiel said in a statement.

• He highlighted new, more powerful equipment that would go online to help achieve the expansion plans.

Between the lines: Greg Lewis, an analyst at BTIG, during the earnings call touched on the company’s exit from the Hardin facility, asking what it might have cost to move the rigs instead of selling and replacing them with newer equipment elsewhere.

• “The miners that are in Hardin, if you go back to our archives, our cost to acquire was somewhere under $20 per terahash, so they could be sold for a small loss or almost breakeven,” Thiel said in a response to the question.
• “The cost to move them, if we were to move, would be $1 million to $1.5 million to do that. We’re focused on deploying the latest machines; so we can have a clean break from Hardin. So we can go ahead, Thiel said.

What we watch: Thiel said more than once that Marathon will hit the 23.3 exahash target, but pushed out the timeline to mid-2023.

The bottom line: Marathon has been struggling with delays for a while. In May, the company still expected to reach its long-term goals by early 2023, an investor presentation shows.

What will be next: Peer mining company Core Scientific is due to report after the market closes on Wednesday.