Will the Bitcoin price plunge more from a “Miner Death Spiral”?
Bitcoin is attracting interest from the oil and gas industry and increasing concerns about using renewable energy for operations.
Sad state of BTC mining
The “cost of extracting Bitcoin” in the United States has recently caused a movement in the BTC price that has attracted interest from the cryptocurrency world, especially since BTC miners have made headlines about it.
The mining industry has been hit by a storm caused by the crypto bear market and rising energy prices, which has forced some companies to lay off workers while others are postponing their capital investments.
Industry leaders believe a few factors may have contributed to a death spiral for Bitcoin mining.
In this context, Raymond Nasser, CEO of Arthur Mining, informed the Cointelegraph that their margins do not completely coincide with the statistics from @PricedinBTC.
He further claimed that the company’s current capacity is 25 MW, and they prioritize renewable energy sources. At first glance, however, their claims will be rejected because listed companies with 300 MW plants, such as Marathon Digital Holdings, are dependent on conventional grid electricity, even if some power comes from hydropower plants.
Therefore, smaller mining companies use undervalued torch and stranded gas from the oil and gas industry to achieve the best environmental, social and governance principles (ESG). Their secret is mobile Bitcoin mining equipment that uses cleaner, more efficient and more lucrative energy sources than conventional ones.
Factors Contributing to the BTC “Death Spiral”
The price of electricity has doubled
One of the best things about the Bitcoin community is that it promotes efficiency. This means that the labor-intensive production process will always look for the lowest operating costs and gravitate towards it. In addition, ASIC mining equipment is portable, but more importantly, it can be customized to use multiple energy sources.
For example, these units, which operate with oscillating energy sources, can be placed in containers and transported to offshore oil and petrol plants.
Higher interest rates
Regardless of energy source, balances have been a problem for miners.
Financing has been a significant barrier to business, in addition to the effect of lower Bitcoin prices. About $ 4 billion in debt is owed by major Bitcoin miners, and some of them have been forced to sell their BTC holdings to pay for capital and operating costs, based on market reports.
However, not all mining companies can obtain conventional long-term bank financing. Instead, these companies used their infrastructure and mining as collateral to build a more risky debt structure.
Negativity surrounds the asset
As the price of Bitcoin fell, so did the price of mining equipment, which worsened their access to capital just when they needed it most.
Rich Ferolo, a blockchain solution analyst, stated that if BTC manages to stay around 18k, there will be many surrenders, insolvencies and extra machines that will come into the picture. It will be the survival of the fittest.
As explained by Nasser: Investors have always limited their convexity exposure by selling or immediately reinvesting their bitcoin balances on a weekly basis. They realize that being too greedy by retaining Bitcoin reserves can ruin your business and cost you jobs, as was seen in the petroleum industry last month.
Last thoughts
This endless loop supports the “death spiral” notion; However, this exaggeration ignores the fact that miners turn off the equipment when prices fall below a certain level. Many will move to regions with lower electricity prices or even look at the possibilities for renewable energy.
Despite all that has been said above, one thing is clear that the network becomes less secure with reduced mining activity. Bitcoin adjustments further increase miners’ incomes.
In simpler words, there is no systemic danger to the price of BTC from the Bitcoin mining industry.
