“Sour” The story of people in the Bitcoin mining profession these days…

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2022-07-02 23:59:39

Bitcoin miners have never been as miserable as they are now. Despite taking out a mortgage on the rig for $4 billion in debt, it seems that both their miners and Bitcoin are in danger of being sold off.

Nearly 50% of Bitcoin value lost in the past 1 month has created a huge financial burden for Bitcoin mining companies, including those that specialize in lending money to these companies. Survey from Bloomberg Most of them are forced to gradually sell their reserve coins and mining systems to maintain operations or temporarily pay off debt.

“The sale of Bitcoin will put more pressure on the price of the cryptocurrency. The value of the device could fall even lower, if the lender seeks to cover its losses, by liquidating the machines it owns. mortgaged.”

If the market situation shows no signs of improvement, in the worst case scenario, a bad scenario could happen for cryptocurrency miners. Luka Jankovicthe head of lending at Galaxy Digital described the miners as going through a “painful feeling”.

Many cryptocurrency miners have started to unload their machines, livestream selling graphics cards on e-commerce platforms when the price of BTC and ETH plummeted.

The Possibility of Selling Miners and Bitcoin

In fact, not many Bitcoin mining organizations have been declared “insolvent”. However, large numbers are starting to show signs of trouble. Such as, Core Scientifica company that specializes in providing Bitcoin mining infrastructure to American customers had to sell 2,000 Bitcoins in May for operating expenses.

In Canada, Bitfarms – The cryptocurrency mining giant also “sadly” sold nearly 50% of the virtual money mined in the beginning of next month to repay part of a $100 million loan from Galaxy Digital.

“At this price, operations are having negative margins. The value of the machine is also falling sharply and is in the process of ‘price detection’, while energy prices fluctuate and supply is limited,” Jankovic commented. essay.

One "plowing buffalo" Bitfarms Bitcoin Mining in Canada.
A “buffalo plow” Bitcoin mining Bitfarms in Canada.

During the crypto bull period, Bitcoin mining became a highly profitable business, with profit margins that could be as high as 90%. Therefore, many units have set foot in this activity, spending a large amount of capital to build a powerful computer system to quickly meet the needs of transaction processing and receive Bitcoin or token rewards. However, because of the strong volatility of the market, this is an area where it is often difficult to get loans from traditional financial institutions, or have to borrow at high interest rates.

As a result, some crypto-lending companies like Galaxy Digital, BlockFi, Celsius Network… expanded its portfolio of collateral with miners, in addition to cash. This continues to create another risk for miners as the market plunges.

“Companies are worried about their loans, especially loans with high collateral ratios.” says Ethan Vera, co-founder of Bitcoin mining company Luxor Technologies. He also said that many miners used to think that it would be easy to raise capital and bought tens of thousands of machines, making a deposit, but now that is not possible.

According to Vera’s estimates, cryptocurrency miners are borrowing at least $4 billion in debt and collateralized by machines, more than even token-backed loans.

Potential risks for Bitcoin miners

According to analyst Jaran Mellerud At Arcane Crypto, the cost to dig a Bitcoin is about 8,000 USD, with the condition that the “buffalo plow” is new and the average electricity price. At the current BTC level of only $20,000, in fact, many miners can still make a decent profit. But the risk comes from many Bitcoin miners using loans to invest.

“The decrease in revenue will affect their work because some have used loans and mortgages to buy machines. They will hardly be able to pay without selling off a significant portion of their Bitcoin holdings.” Mellerud commented.

Experts predict that a strong shake-up in the industry is coming, especially as Bitcoin miners are facing negative profit margins. The main reason is that they spent money buying expensive equipment months before believing Bitcoin would increase in price.

“For some miners, if you factor in the money spent on infrastructure and interest, the total cost of a Bitcoin can be over $20,000, equivalent to the current Bitcoin price,” said Wilfred Daye CEO of Securifying Capital, said.

Follow Will FoxleyDirector of Compass Mining specializes in providing financial support to miners, the ability to raise capital and loan opportunities for Bitcoin miners is gradually drying up.

“When the price of Bitcoin drops, the price of machines drops even more because people will not want to use these machines for anything,” Foxley commented.

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