FTX Fallout Hits Bitcoin Miners, More Bankruptcies Coming

What happened

With Bitcoin’s price down 20% since news of FTX’s financial woes began circulating on November 6, bitcoin miners are now earning less revenue than ever before.

This blow to bitcoin’s price reduces margins as conditions worsen for miners in a year marked by crypto’s bear market and rising energy costs, and has the potential to drive companies that have survived this far into bankruptcy.

Broader Context: The FTX Fiasco Shakes Every Corner of the Cryptosphere

When news of FTX’s demise broke, the subsequent bank run on the exchange’s accounts triggered a market meltdown. Bitcoin cratered to $15,500 and the broader crypto market crashed with it. A number of projects and companies had direct exposure to FTX and its sister company Alameda, either by holding funds on the stock exchange, investing in the companies or lending them money. Notable blue-chip crypto firms with money tied up in Sam Bankman-Fried’s founding empire include Galaxy Digital, Coinbase, Coinshares and Genesis Trading.

It does not appear that publicly traded bitcoin miners had direct exposure to FTX and Alameda. For your part, Marathon Digital announced which it never had, so did Hut 8.

But Bitcoin miners have been shaken by the implications of FTX’s plight. The market sell-off has weighed on mining stocks, even taking into account a minor rally after bitcoin recovered from last week’s low of $15,500 to today’s $16,500.

In addition, hash price – a measure of the revenue potential of a unit of bitcoin mining computing power – hit an all-time low last week.

The following chart shows bitcoin’s hash price in terms of dollars per terahash (TH) per day (a top machine like the S19j Pro produces 100 TH per second).

At current hash price levels, a miner running an industry-standard machine like the Antminer S19j Pro earns only $6 in revenue per day per machine, compared to $36 per day in revenue this time last year.

Outlook and Implications: Bitcoin mining margins are crushed in recent market rout

With hash prices experiencing new lows, the bitcoin mining margins for many run-of-the-mill players have basically disappeared.

At today’s level, miners with hosting and/or electricity contracts for 8 cents/kWh using industry standard S19j Pro bitcoin miners are effectively at breakeven. Miners with power rates above this level are underwater.

The table below shows breakeven hash price levels for different Bitcoin miners under different power rates. It is colour-coded: green indicates profitability, yellow marginal profitability, orange breakeven and red unprofitability.

Most public miners replaced their older machines (like the S17) this year with newer equipment like the S19j Pro. A few, including Marathon, Riot and Bitfarms, have started distributing the S19 XP, the most powerful and efficient miner to date; yet this model represents a fraction of these miners’ deployed capacity.

Even at electricity costs of 5-6 cents/kWh, miners using the S19j Pro are sweating the current market environment.

Decision Points: FTX Contagion May Bring New Bitcoin Miner Bankruptcies

Bitcoin mining margins are completely compressed and capital is becoming increasingly difficult to obtain. For publicly traded bitcoin miners, the current environment puts them in situations that range from uneasy to potentially dire.

Even before Bitcoin’s recent price decline, some of these miners were showing signs of trouble. For example, Core Scientific hinted at possible bankruptcy in an SEC filing in October. Core’s stock is down 98% since it began trading in April last year.

Other miners are trying to restructure their debt, such as Stronghold Digital Mining, which returned 26,200 bitcoin mining machines to lender NYDIG to cancel its $67.4 million debt.

As Q3 earnings reports continue to roll in, we’ll get a better idea of ​​which miners are best positioned to weather the current market conditions. Those with solid balance sheets and low debt, such as Hut 8 and Riot, will be able to keep up with debt and remain liquid. As we’ve seen with Core Scientific, highly leveraged miners could find themselves in hot water if Bitcoin’s price remains depressed or goes lower.

Mining stocks have been breathed this year, but that doesn’t mean they can’t go lower.