What bitcoin miners are doing to survive the bear market – decrypting | Omd Cialis

Cryptocurrency miners have many fixed costs, such as electricity, real estate, and the souped-up computers or rigs that do the actual mining.

Because of this, it can be hell for their margins when the market takes a nosedive and causes the value of any funds they have been holding in crypto to drop dramatically, such as Bitcoin. And now that the crypto market is in what appears to be a prolonged bear market, miners are being forced to adapt.

The global market cap of crypto today is about $1 trillion — half what it was in April, according to CoinMarketCap. Markets took their first major dive when Terra began to melt in May, then again in June when Celsius became the first major crypto lender to freeze customer withdrawals to stave off a bank run.

In June, Arcane Research released a report revealing that publicly traded bitcoin miners sold more bitcoin than they mined in May. A frightening statistic at the time.

But now, in July, data shows public miners have sold 400% of their production in June and have reduced their total BTC holdings by 25%, according to Jaran Mellerud, an analyst at Arcane Research.

Among the selling companies was Core Scientific, which sold its $165 million Bitcoin holdings to “increase liquidity‘ and Bitfarms, which were liquidated more than half of its BTC supply to settle debts.

One of the reasons for the bottleneck was the lack of space to connect and run mining rigs, said Saber 56 CEO Phil Harvey. From what he’s seen, the adage that bear markets are the time to build is one sad irony.

His project management and operations firm scouts data center locations and works with local utility companies to ensure they can accommodate crypto mining companies. But as markets have plummeted, he has seen companies that have made major efforts to buy mining assets over the past year, pausing or abandoning construction projects.

“At the far end of the [Bitmain Antminer S17] era and then the [Antminer S19], there was only one flood where Bitmain had evidently caught up on supply and demand and that flooded the market. But people still had the old thought, ‘Oh, you know, we have to get the machines. That’s our key to mine,'” he said decrypt on a call from the Mining Disrupt conference in Miami. “But no one has figured out that these machines are sitting in warehouses with no infrastructure and are not going to generate any revenue. And unfortunately that is exactly what is happening.”

The lack of planning has impacted the used rig market. Mining companies that have ordered more machines than they have room to operate are selling their new hardware alongside rigs that operate 24 hours a day. That was a problem for miners who used to be able to rely on selling used equipment to make a bit of money.

“So if people want to sell their second machines now, it’s a shitty show because nobody needs a second machine that’s gone into the ground when they can buy used machines that haven’t even been used,” Harvey said.

The problem has even spread to hardware manufacturers like NVIDIA, who have seen their graphics card prices drop by 50%. Bloomberg reported June.

It’s a difficult time for large, publicly traded companies, said Chris Bae, CEO of Enhanced Digital Group.

His firm, founded and staffed by former Wall Street derivatives traders from UBS, Goldman Sachs, Merrill Lynch and JPMorgan Chase, has spoken to crypto companies, including miners, about how to better plan for market downturns.

“I think what we are discovering is the cash flow needs, the breakeven talks around bitcoin that have really skyrocketed. And we’re not at the beginning with this stuff anymore. A lot of miners have investors who just want to invest,” Bae said decrypt. “They don’t do this pro bono.”

That means getting companies to commit to selling some of their reserves at a set price in six months’ time, rather than liquidating ahead of an earnings call and exposing themselves to price volatility.

“What we’re doing over the next few months is finding ways for a miner to sell above the spot rate,” he said. “We are often asked whether there is enough liquidity. There is always enough liquidity to plan. There is never enough liquidity when you need it.”

To do this, Bae and the team at Enhanced Digital Group hedge interest rates in the futures, or futures, markets. Forward and futures contracts are types of derivatives that allow investors to buy or sell an asset at an agreed price in the future.

For example, a miner might have entered into a 6-month futures contract to sell some of their bitcoin in January. That would have meant they could have sold at a set price in June, when markets were in freefall on rumors at the time that crypto lenders Celsius and Voyager and hedge fund Three Arrow Capital were in default.

There have been a few bright spots en masse in an otherwise difficult time for crypto. For example, it’s a good time to be a hosting company like Applied Blockchain that already has infrastructure in place.

The Dallas-based hosting company just signed a deal with Marathon Digital for an undisclosed amount to provide 200 megawatts of hosted capacity in its owned and operated data centers.

Applied Blockchain CEO Wes Cummins views crypto years like dog years — it’s the fastest-moving and most volatile area he’s been in in over 20 years of technology investments, he said decrypt on a call from Paris, where he had traveled to attend a board meeting.

“We only build data centers and offer our customers a kind of white-glove hosting service. That’s become the bottleneck where ASICs definitely were a year ago — that was the bottleneck,” Collins said. “A lot of people either have the equipment they paid for that will be delivered in the future, or they already have mining hardware that they need to hook up somewhere.”

For now, he said, lower bitcoin prices could push mining companies out of breakeven, meaning the chances of companies being able to earn at least as much as they originally paid for mining equipment are slim.

That could slow growth in North America’s mining industry, which has otherwise been in decline big surge since China banned crypto miners last year. Cummins said there’s a lot of hardware in the US — which will eventually boost the country’s overall hashrate — but it could be a while before much of it comes online.

He also expects the mining industry to see the kind of consolidation that’s already happening among lenders, with Alameda Research acquiring a stake in Voyager Digital from Sam Bankman-Fried and FTX doing the same with BlockFi; or crypto lender Nexo acquiring its rival Vauld.

“Mining companies, no matter where you are in the supply chain, just slow down. You could still have the risk on your Bitcoin balance sheet. You could have loans from some of the big lenders in the space, but it’s going to be another few months before you default on the loans, maybe work something out with the lender,” he said. “It’s not just an overnight thing where you’re dealing with a large number of people trying to withdraw funds or crypto from your platform.”

Last month, Swiss-based mining company White Rock Management made its US debut in Texas, where Allied Blockchain will house Marathon’s rigs.

White Rock CEO Andy Long said the company, which has 55 MW of mining capacity in Sweden and now the states, plans to continue expanding through 2023.

“The people who are in trouble have ramped up their credit card-buying machines,” Long said decrypt. They went into the market, got access to a lot of capital, placed big orders at the top of the market when machine prices were three times what they are now, and now they have to pay the piper.”

Long said that part of the six-year-old company’s strategy for surviving bear markets, particularly for its Texas facility, was to choose its energy sources wisely.

For example, his Texas facility runs on flare gas, or natural gas released from oil production, which is diverted into generators and used to power mining rigs.

“When the governor asked everyone to shut down their miners a few weeks ago, we didn’t have to because we’re not on the grid,” he said. “So this is just part of our diversification. Hydro in Sweden, flared gas in Texas and something else in another state. In this way we simply spread our risk.”

Despite all the bear market bites, Long expects the Bitcoin network hashrate to increase by almost a third by the end of the year. Hashrate is a measure of the overall computing power of a blockchain. Each hash represents a “guess” of a cryptographic string. In proof-of-work blockchain networks like Bitcoin, the miner who guesses it correctly wins the right to verify a block’s worth of transactions and receives a reward.

“It’s slowed down. But this retracement that we’ve had, unless the bear market really turns for the worse, I think we’re going to see 30%.”

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