Miners Head for the Exits
They could only do so much to hang on.
I am talking about the miners – the crypto miners who were operating under sub-optimal conditions.
I could make a case for Bitcoin at $35,000 as it relates to miners staying in the game before they can sell their coin when it goes back up to $65,000.
However, at a pitiful $20,000 per one BTC, mining BTC is a big loss-maker which is setting off a tidal wave of pain in the mining industry.
What once would be considered a story of tenacity for Bitcoin miners has now turned into utter capitulation of bankruptcy.
Like many other businesses, the cost of producing products is important and when the cost of oil is low, crypto miners laugh all the way to the bank.
That hasn’t been the case lately.
It was only just at the end of 2019 that the price of Brent crude was $20 and fast forward to late June 2022, it settled around the $110 per barrel mark today.
There is also a plausible case that we haven’t even seen the inflation caused by the Easter military conflict because inflation and especially inflation comes with a 6-month lag.
It was no coincidence that Bitcoin’s most recent meteoric rise took place when the nominal cost of energy was half of what it is today.
The most glaring unintended consequence is the distressed nature of Bitcoin miners whom many have gone out of business because they simply aren’t profitable amid uncontrollable energy prices and hyperinflation.
To dig deeper in the weeds, electricity comprises 90-95% of Bitcoin mining costs.
Miners also sell coins once they produce them to pay back the energy cost and then pocket the difference. That operation makes no sense today and there’s simply not enough money to pay the electric bill after the coin is sold.
Who are the publicly traded miners?
HIVE (HIVE) is a Canadian miner that produced 278 BTC in March of 2022. The company also mines Ethereum with 2,549 produced, so that can diversify the company away from BTC. However, the company draws down on its ETH holdings to fund its strategic deal with Intel (INTC). The company sold 10,000 ETH to fund BTC rigs.
Ironically, the company has an ETH mining operation in Sweden which is the very nation leading the charge against Bitcoin operations in Europe.
Hive has access to 50MW of power and has an operating margin of 74% at present.
Marathon Digital (MARA) is focused on North American operations, which would shield it from European legislation. Marathon produced a Record 1,259 BTC in Q1 2022, up 556% Year-Over-Year and its total Bitcoin holdings increased to 9,374 BTC.
In the short-term, cost challenges handcuff the best of them and the share prices of stocks like Marathon, Canaan (CAN), Riot, and Marathon are down in the dumps.
When there is either a military peace solution or a recession, the price of energy might come down to bearable levels.
Until then, tough luck for the crypto miners and avoid buying the dip. There’s more pain to come until something meaningfully changes to the underlying situation.
