How has the crisis over the FTX cryptocurrency exchange affected Bitcoin miners?
With the crisis surrounding FTX, many crypto-enthusiasts have begun to fear a surrender of BTC miners, i.e. a massive sale of bitcoins by them. However, hashray and transaction data from ASIC miners show that the cryptocurrency mining industry has remained relatively stable so far, and that miners have managed to keep the situation under control. Moreover, the global trend points to a significant reduction in BTC inflows to exchanges from their wallets.
As a reminder, most miners' main expense item is electricity. They get their income by selling bitcoins, and the profitability of the business depends on the difference between the cost of mining BTC and the market value of the cryptocurrency.
The current environment in the mining industry is one of the most challenging. Firstly, Bitcoin’s value is now 76 percent below its all-time high, directly impacting the fiat profitability of mining.
Bitcoin’s exchange rate situation
Secondly, the difficulty of mining BTC is near its maximum. This means that every single piece of Bitcoin mining equipment is generating more revenue than ever before. That said, it’s worth noting that at the same time, the network’s hash rate – that is, the total amount of computing equipment in the blockchain – continues to set records. Which means ASIC owners continue to connect to BTC mining, despite all the problems in the industry.
What are Bitcoin miners doing now?
As we’ve already noted, Bitcoin’s hash rate is currently near its all-time high. The prolonged bearish trend of the crypto market and the aftermath of the FTX crash have failed to knock any noticeable amount of processing power out of the business. Which means the cryptocurrency network is now safer than ever.
Hashrate and mining complexity
A record hash rate was recorded on Saturday 12 November. At that time, the total processing power of the network reached 343 hashes per second.
Bitcoin network hash rate record
The influx of BTC from miners’ wallets to crypto exchanges can be seen in the chart below. The last notable spike in the chart is an inflow of around 1,300 BTC per day to the trading venues on November 8, when FTX’s bankruptcy became inevitable.
BTC inflows from miners’ wallets to exchanges
According to Cointelegraph’s sources, the collapse of FTX has been more resilient for miners than previous waves of Bitcoin price collapse. By comparison, in mid-June 2022, when the Bitcoin price fell to $17,600 for the first time in two years, bitcoin inflows to exchanges from miners reached 5,729 BTC per day.
BTC inflows from miners’ wallets to exchanges on a larger scale
Overall, since the last halving in May 2020, miners have significantly reduced their daily sales volumes. At the same time, the average amount of transfers to miners’ exchanges per week was around 1,200 BTC per day. Already by October, this figure had dropped to around 100 BTC per day.
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Unfortunately, financial stability has not been maintained by all players in the business. The day before, mining company Core Scientific was sued after failing to disclose a number of unfavourable financial circumstances in its reports to shareholders this year.
Plaintiff and shareholder May Pang alleges that the company knowingly provided false information to its shareholders between 3 March this year and 28 October. On 3 March, Culper Research published a report that Core Scientific had “overstated its profitability” and entered into a dispute with Gryphon, its largest customer. Gryphon did not have enough money to buy the necessary equipment to accommodate Core Scientific’s data centre.
On the same day, but after the report was published, Core Scientific’s share price fell 9.4 percent.
Core Scientific share price since 1 January this year
During the year, new details emerged about the mining company’s difficult financial situation. In particular, its ties to bankrupt lending platform Celsius were revealed, leading to a new lawsuit on September 28.
Alas, Core Scientific is not the only mining company experiencing significant difficulties lately. Also worth mentioning here is Greenidge Generation, which reported losses of $107.9 million in the second quarter of this year, and Compute North, which filed for bankruptcy in September.
The bankruptcies of even more mining companies would force them to sell their mined coins en masse, which in theory could lead to a wave of Bitcoin price declines. However, this is probably irrelevant in a bankruptcy, as asset liquidators try to find buyers for assets rather than sell them off at the market rate.
ASIC miner for Bitcoin mining
We think the Bitcoin network's hash rate situation clearly proves the incredible interest in mining the first coin by miners. They have to endure both record complexity and incredible competition from other ASIC owners. Obviously, from the perspective of current miners, the value of BTC is enormous - and that will be evident in the future.
What do you think about this? Share your opinion in our millionaires’ cryptochat. There we will discuss other important developments from the blockchain world as well.
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