Cryptoverse: Bitcoin Miners Escape the Bear Trap
April 18 (Reuters) – Beleaguered bitcoin miners are finally feeling the spring sun after a cold, harsh crypto winter.
The power-hungry companies pumping new bitcoin into circulation have been thrown a lifeline by the cryptocurrency’s rally to over $30,000 this year, which has conspired with falling electricity prices to boost their profitability.
The 30-day average of mining revenue has risen to $27.34 million per day, the highest level since June last year, according to data from Blockchain.com.
That’s a relief for miners who struggled to service heavy debt loads as earnings fell between $15 million and $21 million for most of the second half of 2022. They’re still a long way from a peak of $61.2 million in November 2021.
“Many public miners were on the verge of bankruptcy at the end of last year. With today’s bitcoin price, these companies’ cash flows have improved significantly, and most of them should have no problem paying their obligations,” said Jaran Mellerud, an analyst at bitcoin mining services company Luxor.
The miners’ debt to equity ratio now looks much healthier, Mellerud said, adding that many companies had restructured and paid down debt in recent months.
Marathon Digital Holdings’ debt ratio has fallen to 0.5 from 2 since the start of this year, for example, while Greenidge Generation Holdings ( GREE.O ) has fallen to 5.8 from 11.7, according to data from Luxor.
The spring meltdown has seen investors flock back to publicly traded cryptominers; Among the biggest players, Marathon ( MARA.O ) and Riot Platforms ( RIOT.O ) have seen their share prices more than triple this year, while Valkyrie Bitcoin Miners ETF ( WGMI.O ) is up 162% and Greenidge has gained 137%. But they have continued to lose 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 math problems with energy-intensive computer systems, meaning electricity makes up a significant portion of their operating costs.
Declines in power prices, particularly in the US, have eased pressure on the company’s margins, according to analysts at BTIG, who said the electricity cost of producing one bitcoin has fallen around 40% since the end of last year.
This means that despite both the computing power available on the network and the difficulty of mining steadily increasing to new all-time highs – meaning it should take more power to mine one block – the 30-day average cost per transaction for miners fell to their lowest levels since September, Blockchain.com data showed.
OUT OF THE WOODS?
Miners can’t get too cozy, however, as their fortunes are tied to bitcoin’s capricious price trajectory.
“If we see bitcoin peak and consolidate, the rise in miners may do the same, we expect to see more volatility as we head into the summer,” said Kevin Kelly, head of research at Delphi Digital, although he sees a favorable environment for crypto persists through 2023, compared to last year.
Despite balance sheet improvements, many miners still have a lot of debt to pay off and are still struggling, Luxor’s Mellerud said.
“The rise in the price of bitcoin has bought these companies time, but it would be detrimental to these companies if it were to fall back to $20,000,” he said.
Most companies are focusing on debt reduction rather than spending on new equipment, BTIG said, even though the estimated cost of new mining rigs has fallen about 69% since the end of 2021.
There are some exceptions, however, with CleanSpark ( CLSK.O ) taking advantage of falling prices to buy 45,000 new mining rigs, which will almost double its computing power.
A rapid rise in power prices or a rapid fall in bitcoin could usher in another cold spell. But for now 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, an analyst at digital assets broker GlobalBlock ( BLOK.V ).
Reporting by Lisa Pauline Mattackal and Medha Singh in Bengaluru; Editing by Vidya Ranganathan and Pravin Char
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