Bitcoin Miner Deleveraging, Shrinking in Size as Crypto Winter Continues Through 2023

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(Bloomberg) – Cash-strapped bitcoin miners are cutting lending and reducing operations as the crypto mining industry continues to face a crash in the price of digital assets.

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During the historic bull run at the end of 2021, miners raised billions of dollars in debt funding to fund their expanding operations. But since the crash early last year, publicly traded miners have been refinancing and selling coin reserves as well as equity to repay loans and cover operating costs.

Miners are trying to deleverage to avoid margin calls or an impending liquidity crisis if Bitcoin falls below a certain price, said Wolfie Zhao, analyst at crypto advisory firm BlocksBridge.

Miners like Marathon Digital Holdings Inc. have raised hundreds of millions of dollars in coin-backed loans from crypto-friendly banks like Silvergate Capital Corp., which has been reeling from the collapse of the crypto industry. cryptography.

Core Scientific Inc., the biggest bitcoin miner by computing power, was the first major public mining company to declare bankruptcy in December, citing falling bitcoin prices and soaring energy costs for its woes. Treasury. The Austin, Texas-based company is trying to come up with a plan to pay off its creditors.

Last month, Marathon eliminated its $30 million revolver debt, increasing its unrestricted cash to more than $100 million, according to BlocksBridge.

Money raised through debt financing from 15 major state-owned mining companies has declined since the first quarter of 2022, and for the first time in the third quarter, it contracted $112.6 million, according to data compiled by BlocksBridge. That’s compared to a total of $348 million and $188 million in the first and second quarters, respectively, 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 showed.

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Any sudden drop in Bitcoin price can lead to a major liquidity crisis. Bitcoin rose over $45,000 in March 2022, but fell to $29,000 a month later when the Terra Luna cryptocurrency crashed, wiping out around $40 billion from the crypto market. The Federal Reserve’s monetary policy tightening and implosions of major digital asset companies such as hedge fund Three Arrows Capital and crypto exchange FTX also weighed on token prices throughout the year. last. Bitcoin has fallen around 65% in 2022.

Some miners like Riot Platforms Inc. and Bitfarms started selling their coin stashes last year to increase liquidity. Marathon, which tends to keep its coins mined, still has 12,232 Bitcoins on its balance sheet. About 36% of the reserve is restricted, secured by its remaining loans as of Dec. 31, according to BlocksBridge.

Meanwhile, Argo Blockchain PLC, along with Core Scientific as well as Riot Blockchain Inc., have recently had to turn to selling stocks to raise funds amid the crisis.

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