Data shows the Bitcoin mining bear market has a way to go

by · December 9, 2022

Bitcoin (BTC) mining is the backbone of the BTC ecosystem, and miners’ returns also provide insight into BTC’s price movements and the health of the broader crypto sector.

It is well documented that Bitcoin miners are struggling in the current bear market. Blockstream, a leading Bitcoin miner recently raised funds at a 70% discount.

Current mining activity shares similarities with historical BTC bear markets with a few caveats.

Let’s explore what this means for the current Bitcoin cycle.

Analysis shows that based on previous cycles, the bear market may continue

Bitcoin mining profitability can be measured by taking the miner’s income per kilowatt hour (kWh). According to Jaran Mellerud, a Bitcoin analyst for Hashrate Index, a BTC mining bear market has a sustained period of earnings per kWh of less than $0.25. Under his assumption, he calculates using the most efficient Bitcoin miner on the market.

The 2018 bear market lasted nearly a year, sending kWh to a low of $0.12. After the downtrend, a short bull market started until the bear market of 2019 began.

According to Mellerud, the 2019 bear market produced low earnings per kWh of $0.083 and lasted 463 days, while the Bitcoin price fell to $5,000.

The last mining bear market started in April 2022 according to Mellerud’s analysis of income per kWh. As of December 8, the current bear market has lasted 225 days with a minimum income of $0.108 per kWh. The figure is higher than in previous bear cycles due to high energy prices.

Bitcoin mining historical revenue per kWh. Source: Hashrate Index

Comparing the current bear mining cycles, a minimum of 138 bear market days can continue before the market turns. The difference between this period and previous cycles is that previously miners were mainly self-funded, while now there are many miners who financed their rapid growth with debt.

Public mining stocks are feeling the pain

At its peak, Bitcoin mining stocks reached a cumulative value of over $17 billion in the bull market of 2021. The bull market increased investor interest and spurred the growth of BTC mining stocks to skyrocket from $2 billion in November 2020.

After reaching the bull market peak of 2021, cryptomining stocks are under immense pressure, with many falling by 90%.

Total market capitalization of Bitcoin mining stocks. Source: Hashrate Index

The massive amount of debt that public mining companies have taken on at Bitcoin’s all-time high creates a huge debt-to-equity ratio.

A good example of how the bear market increases miners’ dependence on debt is to look at Core Scientific. Before the mining bear market in April, Core Scientific had only 0.6 debt to equity. Since the start of the bear market, this figure has grown to over 24.2 debt to equity.

Nuclear debt-to-equity. Source: Hashrate Index

With the Bitcoin mining bear market expected to continue based on past historical BTC trends, more public miners will face equity squeezes. As miner debt continues to grow, investors may become spooked, creating even more depressed stock market prices.