Bitcoin nosedive and high electricity price: bad times for crypto miners

Electricity costs are skyrocketing, squeezing profits for energy-intensive bitcoin mining companies.

Some listed crypto miners have sold their bitcoin at a deep discount to cover rising costs. Some companies may even be in danger of collapsing.

This development also means bad prospects for private individuals who mine cryptocurrencies.

–

Bitcoin miners are struggling to stay profitable as energy prices soar while crypto prices plummet. Listed companies are selling their mining tokens at a deep discount to pay off bitcoin-backed loans and meet rising operational costs. According to analysts, this could eventually lead to many players withdrawing from the ailing sector.

Electricity costs are rising sharply around the world, in part due to higher natural gas and coal prices as a result of Russia’s war against Ukraine. In the US, prices will rise by 5 percent this summer, according to the EIA forecast. At the same time, bitcoin has fallen almost 70 percent from its all-time high in November and is now trading at $21,000.

read too

–

“In ten years nobody will be talking about cryptos anymore,” says financial expert Peter Thilo Hasler, naming two arguments

–
–

These two factors have impacted the economics of crypto mining companies. They use supercomputers to “mine” the tokens, which consumes large amounts of energy. “Energy costs account for about 79 percent of the operating costs of bitcoin miners,” said Alexander Neumüller, the project lead for the University of Cambridge’s Bitcoin Electricity Consumption Index. “They’re essentially faced with rising costs and a precipitous drop in revenue,” he said.

Miners are trying to increase profits by cutting costs and selling off some of their bitcoin, even as bitcoin’s price is at its lowest in 18 months amid a major crypto sell-off. “Companies with variable electricity tariffs will likely have to switch off their machines during peak prices. This can take a few hours or even days,” said Matt Schultz of CleanSpark. “A number of listed miners are being forced to sell their coins. Some of them at pretty steep discounts,” added the co-founder of the Nasdaq-listed bitcoin mining company.

Anyone who mines cryptocurrencies at home has little chance of making a profit

Riot Blockchain sold 250 of the 466 bitcoins it mined in May for around $7.5 million. Longtime owner Marathon Digital isn’t ruling out selling bitcoin for the first time since October 2020. Even these larger players don’t hold enough bitcoin to make the token’s price move significantly. However, analysts said some mining companies could collapse if their profits continue to collapse or if they took out loans secured with Bitcoin.

“Many mining companies took out high-yield loans during the bull market to fund their mine-to-hold strategy,” said Sami Kassab, an analyst at Messari Crypto. “Some of these companies are facing liquidations and could potentially go under.” All eyes are now on the mining companies that have taken out bitcoin-backed loans, which is seen as a risk of financial trouble. These companies will likely need to continue selling Bitcoin at a discount, according to bank JPMorgan.

read too

–

Want to know if the stock market has bottomed? Watch Bitcoin, advises investor legend Mark Mobius

–
–

“Miners selling bitcoins to cover operating costs or to get rid of debt could continue into Q3 if their profitability doesn’t improve,” according to a team of JP Morgan strategists led by Nikolaos Panigirtzoglou in a statement. Additionally, the rise in energy costs and the decline in the crypto market are expected to crowd out smaller players in the crypto mining industry. According to Cambridge’s Neumueller, hobby miners are unlikely to make a profit at this time.

“Maybe there are people who are digging for ideological reasons, but the industry is very competitive,” he said. “It’s hard to imagine anyone putting a few machines in their house or garage making a profit.”

This text was translated from English by Lisa Ramos-Doce. You can find the original here.

–