Data Shows Bitcoin Mining Bear Market Has Some Way To Go

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Bitcoin (BTC) mining is the backbone of the BTC ecosystem and miner returns also provide insight into BTC price movements and the health of the broader crypto industry.

It is well documented that Bitcoin miners are struggling in the current bear market. Blockstream, one of the leading Bitcoin miners, recently raised funds at a 70% discount.

Current mining activity shares similarities to historic BTC bear markets with a few caveats.

Let’s explore what this means for the current Bitcoin cycle.

Analysis shows that based on previous cycles, the bear market could continue

The profitability of Bitcoin mining can be measured by taking miners’ earnings per kilowatt-hour (kWh). According to Jaran Mellerud, Bitcoin analyst for Hashrate Index, a BTC mining bear market has a sustained period of earnings per kWh below $0.25. According to his assumption, he calculates using the most efficient bitcoin mining machine on the market.

The 2018 bear market lasted nearly a year, sending kWh to a low of $0.12. After the downtrend, a short bull market started until the start of the 2019 bear market.

According to Mellerud, the 2019 bear market produced a record revenue per kWh of $0.083 and lasted 463 days, while the price of Bitcoin fell to $5,000.

The most recent mining bear market began in April 2022, according to Melleruds analysis of revenue per kWh. As of December 8, the current bear market has lasted for 225 days with a minimum revenue of $0.108 per kWh. The number is higher than in previous down cycles due to high energy prices.

Historic bitcoin mining revenue per kWh. Source: Hashrate Index

Comparing current bearish mining cycles, a minimum of 138 bear market days may continue before the market turns around. The difference between this period and past cycles is that previously miners were mostly self-funded, whereas today many miners were funding their rapid growth with debt.

Public mining stocks are feeling the pain

At its peak, Bitcoin mining stocks reached a cumulative value of over $17 billion in the 2021 bull market. The bull market increased investor interest and spurred the growth of BTC mining stocks which rose from $2 billion in November 2020.

After hitting the peak of the bull market in 2021, crypto mining stocks are under immense pressure, with many falling 90%.

Total market capitalization of Bitcoin mining stocks. Source: Hashrate Index

The immense debt incurred by state-owned mining companies taken at an all-time high of Bitcoins is creating a massive leverage ratio.

Mirror, mirror on the wall, who are the strongest public #bitcoin miners of all? pic.twitter.com/pnpypsxcAu

Jaran Mellerud (@JMellerud) December 5, 2022

A good example of how the bear market increases miners’ reliance on debt is to look at Core Scientific. Prior to the April mining bear market, Core Scientific only had a leverage ratio of 0.6. Since the beginning of the bear market, this number has increased to more than 24.2 debt/equity.

Core Scientific debt ratio. Source: Hashrate Index

With the Bitcoin mining bear market expected to continue based on past historical BTC trends, more public miners will face stock cuts. As miner debt continues to grow, investors may be spooked, creating even more depressed prices in the stock market.

The views, thoughts and opinions expressed herein are the sole authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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