Cash-strapped Bitcoin miners are cutting back on loans and scaling back operations as the crypto mining industry continues to experience a decline in the price of the digital asset.
Cash-strapped Bitcoin miners are cutting back on loans and scaling back operations as the crypto mining industry continues to experience a decline in the price of the digital asset.
During the historic bull run at the end of 2021, miners raised billions of dollars in debt financing to finance their growing operations. But since the crash early last year, publicly traded miners have been reassessing and selling their coin reserves as well as equity to pay off debt and cover operational costs.
“Miners try to deleverage in order to avoid a limit call or a liquidity crunch imminent if Bitcoin drops below a certain price point,” Wolfie Zhao, analyst at crypto-consulting company BlocksBridge, said.
Miners like Marathon Digital Holdings Inc. has raised hundreds of millions of dollars in coin-backed loans from crypto-friendly banks such as Silvergate Capital Corp., which has been reeling from the crypto industry crisis.
Core Scientific Inc., the largest Bitcoin miner by computing power, was the first public mining company to declare bankruptcy in December, citing falling Bitcoin prices and rising energy costs for cash flow problems. The Austin, Texas-based company is trying to come up with a plan to pay off its debt.
Last month, Marathon wrote off $30 million in revolving debt, increasing its unrestricted cash to more than $100 million, according to BlocksBridge.
The money collected from debt financing by 15 large public mining companies has shrunk since the first quarter of 2022, and for the first time in the third quarter contracted $112.6 million, according to data compiled by BlocksBridge. That compares with totals of $348 million and $188 million in the first and second quarters, BlocksBridge said. Overall, net spending on mining infrastructure fell 77% to $180 million in the third quarter, compared to the previous quarter, the company’s latest data shows.
Any sudden drop in the price of Bitcoin could lead to a major liquidity crisis. Bitcoin rose above $45,000 in March 2022 but fell a month later to $29,000 as cryptocurrency Earth Moon crash, wiping out about $40 billion in the crypto market. The Federal Reserve’s monetary policy and the implosions of large digital-asset companies such as hedge fund Three Arrows Capital and crypto exchange FTX have also weighed on token prices in the past year. Bitcoin fell by about 65% in 2022.
Some miners like Riot Platforms Inc. and Bitfarms began selling its coin reserves last year to increase liquidity. Marathon, which tends to hold mined coins, still has 12.232 inches Bitcoin on the balance sheet. About 36% of the reserve is restricted, secured by outstanding loans as of December 31, according to BlocksBridge.
Scientific Core and Riot are selling equity to raise money amid the downturn. Argo Blockchain proposed to issue shares last year, although the offer was not carried out.
