Major mining companies owe lenders $4 billion. What does this mean?
Major miner Core Scientific filed for bankruptcy the day before, with not even $72 million in financial aid from creditors to save its position. Overall, the bankruptcy of a major miner in the market raises questions about the overall sustainability of the major cryptocurrency mining industry. It turns out that the large publicly traded mining business has a total debt of more than $4 billion, which means the mining companies need an urgent restructuring to save the situation. We tell you more about what is happening.
Traditionally, let’s talk about the current situation in the first cryptocurrency mining industry. Right now, Bitcoin’s mining difficulty is near its all-time high. To be more precise, the figure is 35.36 T, while its record from the second half of November is 36.95 T.
This means that the competition for block mining on the Bitcoin network is almost greater than ever before. Accordingly, in the current timeframe, the profitability of any ASIC miner for BTC mining is near its minimum. The relatively low exchange rate of the first cryptocurrency is also worth considering, as well as the increased cost of energy in the world. From this we can conclude that the situation for BTC miners is extremely challenging.
Recent changes in Bitcoin mining complexity
That said, the effects of the high complexity of BTC mining and the prolonged collapse of the cryptocurrency market are already visible. Over the weekend, for example, the first coin’s network hash rate dipped to 168 hashes per second. The last time such levels were recorded was in July 2022.
Bitcoin network hash rate graph for the last six months
The figure has since recovered to the current level of 229 hashes per second. At the same time, the record high is 343 exahexes. Accordingly, miners are not able to withstand the competition complete with the low BTC exchange rate, forcing them to shut down their own equipment.
Meanwhile, Glassnode analysts shared other curious data. They analyzed the Bitcoin network hash rate and came to the conclusion that the most common ASIC at the moment is the Antminer S9 model. The second place belongs to Antminer S17, while the “bronze” went to Antminer S19 Pro. Here is a corresponding graph.
Bitcoin network hash rate distribution between popular ASIC miner models
What’s going on with Bitcoin miners?
During the bull run of 2021, many large miners gained credit, making them vulnerable already during a bearish trend. According to Hashrate Index analysts, the ten largest and most publicly traded mining companies alone owe their lenders more than $2.6 billion.
Mining companies with record debt
Core Scientific’s first debtor has already filed for bankruptcy after another wave of Bitcoin price sagging. Marathon, the second most indebted company, has $851 million in convertible bond obligations. So far, this has allowed debt holders to convert the notes into shares, meaning Marathon is still holding on.
Note that the Core Scientific bankruptcy situation is quite interesting. Still, as of the end of October, the company had reserves of 24 BTC and $26.6 million in cash, but that didn't save it in the end. The fact is that the company leased a huge amount of equipment for BTC mining. However, the exchange rate of the first cryptocurrency fell sharply and for a long time, as a result of which the profitability of this occupation decreased markedly. At the same time, the volume of payments on liabilities remained the same, which means the giant has taken to spending its own reserves to pay off the debt, which stood at $1.07 billion in October.
In the end, the inability to pay the funds on the debentures is what led to the company's collapse.
Core Scientific’s financials as of the end of October
According to Cointelegraph sources, most other miners, including third largest debtor Greenidge, are undergoing a restructuring process to reduce debt. Meanwhile, the debt-to-equity ratio of the mining companies indicates a high business risk.
As a reminder, a debt-to-equity ratio of two times or more is considered risky in most industries. The chart below shows the top ten major miners with the highest value of this ratio. As you can see, even Terawulf, which is in tenth place, already has a value of more than two.
Mining companies with the highest debt to capital ratio
In other words, most major Bitcoin mining players urgently need restructuring proceedings, some of them are likely to file for bankruptcy in the foreseeable future. There is another option – a rapid rise in the price of BTC, which would allow miners to liquidate some of their reserves at a favorable rate and close debts.
It looks like some major miners will also face bankruptcy filings in the near future. Still, now the coin market is quite tightly entrenched at the bottom, as a result, we can hardly count on a sharp increase in profitability of ASIC owners.
That said, it's funny that the exit of the big players from the niche will significantly collapse the network's hash rate - Core Scientific, for example, accounted for about 10 percent of the total hash rate. This in turn will lead to lower complexity and higher profitability of BTC mining, as Bitcoin mining rewards are stable and will then be distributed among fewer niche players. So in the end the whole situation comes down to who will be able to hold out longer and wait for the bull run, i.e. the market reversal.
Stay tuned to our millionaires’ cryptochat. There we discuss other topics related to blockchain and decentralised assets industry.
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