Bitcoin Miners Deleverage, Scale Back as Crypto Winter Continues into 2023
As the price of bitcoin continues to plummet, cash-strapped Bitcoin miners are cutting back on loans and scaling down their operations.
As the price of bitcoin continues to plummet, cash-strapped Bitcoin miners are cutting back on loans and scaling down their operations.
Miners borrowed billions of dollars to finance their growing operations during the bull run that took place in 2021. Despite the crash in late 2021, public-traded miners have been refinancing and selling their equity and coin reserves to repay loans and pay operational costs.
Wolfie Zhao, an analyst from crypto-consulting firm BlocksBridge said that miners are trying to reduce leverage to avoid margin calls and an imminent liquidity crunch if Bitcoin falls below a certain point.
Marathon Digital Holdings Inc. has raised hundreds of millions in loans backed with the coin by crypto-friendly banks like Silvergate Capital Corp. which is reeling from the crypto market meltdown.
Core Scientific Inc. was the largest Bitcoin miner in computing power. It declared bankruptcy in December citing declining Bitcoin prices and high energy costs as the reasons for its cash flow problems. The company, based in Austin, Texas, is working out a repayment plan.
BlocksBridge reports that Marathon paid off its revolver debt of $30 million and increased its unrestricted cash by more than $100 million last month.
According to BlocksBridge data, the amount of debt finance by 15 public mining companies has been declining since the first quarter 2022. It contracted $112.6 millions for the third quarter, the lowest figure in three years, according BlocksBridge data.
BlocksBridge said that this compares to the total spending on mining infrastructure of $188 million and $348 million, respectively, in the first and second quarters. According to BlocksBridge’s most recent data, net spending on mining infrastructure decreased 77% to $180million in the third quarter compared to the previous quarter.
A sudden drop in Bitcoin’s price can cause a liquidity crisis. Bitcoin rose to over $45,000 in March 2022, but dropped to $29,000 a month later when cryptocurrency Luna crashed. This wiped out approximately $40 billion of the crypto market.
The token’s value has been affected by the Federal Reserve’s tightening monetary policies and implosions of large digital-asset companies such as Three Arrows Capital hedge fund and crypto exchange FTX, which have both impacted it throughout the year. In 2022, Bitcoin fell by around 65%.
Riot Platforms Inc., Bitfarms and other miners started to sell their coin reserves last spring in order to increase liquidity. Marathon tends to keep its mined coins and has 12,232 Bitcoin in its balance sheet. According to BlocksBridge, 36% of the reserve was restricted and secured against any remaining loans.
Core Scientific and Riot sold equity in order to raise funds during the slump. Argo Blockchain suggested issuing shares last, but the offering did not take place.