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Bankruptcies and plummeting profits spell doom for the crypto mining industry

Recently exacerbated by the collapse of the crypto trading Platform FTXthe ongoing crisis in the cryptocurrency industry sent most of its participants into chaos, and it did not spare Bitcoin (BTC) neither do mining companies, which are also under pressure from other factors.

Indeed, bearish and sideways trading in almost all crypto assets since January, coupled with rising electricity costs, has triggered a domino effect of mining companies facing a profitability crisis or outright filing for bankruptcy, including including several well-known names in the industry.

calculate north

The first domino to fall was Compute North, the second largest Bitcoin mining hosting provider in the United States, which filed for chapter 11 bankruptcy in late September, followed by another court order requesting a bankruptcy sale to liquidate assets to cover its accumulated debt.

Towards meeting obligations of up to $500 million, Compute North sold two of his assets to crypto mining and staking firm Foundry for $14 million. At the same time, Crusoe Energy bought $1.55 million in assets. In early November, lender Generate Capital bought a stake in two of Compute North’s mining sites for $5 million.

Argo Blockchain

In October, Argo Blockchain informed the public that a combination of factors had affected its profitability, stating that “the price of natural gas and electricity caused by the geopolitical situation in Europe and the low levels of natural gas storage in the United States”.

“These factors, coupled with the declining Bitcoin price since March 2022 and the increasing difficulty of mining, have reduced the company’s profitability and free cash flow generation.

from Argos Press release in late October detailed its strategy to meet its debt obligations and maximize liquidity, adding that “if Argo fails to secure additional financing, Argo will become cash flow negative in the near term and will have to scale down or cease operations.” .

Basic scientist

Another victim of the crypto crisis was Core Scientific, which indicated in its quarterly report with the United States Securities and Exchange Commission (SECOND) that it had accumulated a net loss of $434.8 million during the third quarter of 2022, adding to the $863 million lost in the second quarter. Core Scientific also admitted that it expects its existing cash resources to be “depleted by the end of 2022 or sooner”.

To add insult to injury, Core Scientific was also slapped with a court case alleging he failed to disclose a series of financial issues in his 2022 shareholder statements. The now bankrupt crypto lender Celsius too accused the minor to refuse to respect his contractual obligations.

Iris Energy

After failing to repay a $108 million loan, Australian Bitcoin miner Iris Energy was forced to cut its BTC mining hardware he claimed was producing “insufficient cash flow” in a deposit to the SEC on November 21. This reduced its mining power by approximately 3.6 PE/s (exhalations per second).

In a situation strikingly similar to that of Core Scientific, the company now faces the possibility of a class action in the United States for allegedly deceiving its investors and misrepresenting its financial position in an initial public offering (Initial Public Offering) from November 2021, during which it pooled $232 million in investments.

High Energy Costs Meet Falling Crypto Prices

Meanwhile, Bitcoin miner reserves recently hit an 11-month low of 1,853,425 BTC, suggesting that BTC miners were capitulating, as Noted by leading crypto trading expert Ali Martinez in his November 24 tweet.

Reserves of bitcoin miners. Source: Ali Martinez

As Argo Blockchain has pointed out, it is not just the poor general crypto market climate that has affected the operations and liquidity of major mining companies. According For Bitfarms chairman Geoffrey Morphy, high energy costs were another big factor in the demise of these miners.

In the see From Luxor Technologies chief content officer and Forbes senior contributor Colin Harper, the recent hit to Bitcoin’s price has further squeezed margins and worsened conditions for miners “in a year marked by crypto bear market and rising energy costs.

As he added, this crisis “has the potential to drive businesses that have survived so far out of business,” in the words echoes in the comments of Hive Blockchain Technologies Executive Chairman Frank Holmes, who believes that “there are still many more bankruptcies” to come.

Disclaimer: The content of this site should not be considered investment advice. The investment is speculative. When you invest, your capital is at risk.

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