The bitcoin mining industry has shown serious signs of distress this summer, as miners were reported to have sold more bitcoin than they mined, taking huge losses in the process. Since then, bitcoin’s price hasn’t recovered as the everything-bear market shows no signs of stopping against a backdrop of rising interest rates and war in Europe.
One of the hallmarks of this current downturn has been inflation, which was partly caused by high energy prices, namely in oil and gas. In turn, exceptionally high electricity prices put more pressure on miners who have to contend with lower bitcoin prices.
Cambridge University’s latest figures show the average bitcoin mining cost just above the $19,100 mark. According to JPMorgan, what may have helped miners was more advanced hardware which made mining more efficient and kept bitcoin’s average mining price close to its market price.
JPMorgan’s estimate of the average mining price, using the most advanced mining rigs, is around $13,000. Clearly, however, the market doesn’t think that miners are doing too well in current conditions.
Hive Blockchain Technologies Ltd, a Canadian bitcoin mining company is down 74% year-to-date, slightly better than its Canadian counterpart Bitfarms, which is down 82%.
NASDAQ-listed Hut-8 Mining Corp is also down 74% YTD, Marathon Digital Holdings at 79%, Canaan Inc. 62%, Greenidge Generation Holdings 96%, BIT Digital 92%, NYSE-listed BIT Mining 97%, while UK-listed Argo Blockchain PLS is down 89%. NASDAQ is also planning to delist Digihost, which is 82% YTD if its stock price doesn’t recover.
Last week, Binance announced that it’s issuing $500 million worth of loans to miners at 5%-10% interest rates. Binance’s offering has come after Bitmain founder Jihan Wu Bitdeer set up a $250 million fund to buy distressed bitcoin miners. Bitmain is a major supplier of bitcoin mining rigs.
Just another over-levered player in the bitcoin mining space
One of the biggest miners in the US is Texas-based Riot Blockchain, which is down 82% YTD and has a market capitalization of $948 million and around 6,775 bitcoin in its war chest.
It’s also one of the favorite bitcoin-type stocks out there for rich individuals and institutional investors. Some of its most notable shareholders include the Vanguard Group, which owns 7.18% of the company, BlackRock, which owns 4.83%, and Morgan Stanley which owns 1.32% and has been one of the most active in crypto among America’s major banks.
Despite being a bitcoin mining flagship, Riot Blockchain doesn’t seem to be making a lot of money. During last year’s bull run, it made a net profit of just $26,867,000, and this year, it’s made a staggering loss of $330,705,000. The secret sauce to Riot Blockchain’s survival seems to be share dilution.
As of last year, Riot’s shares outstanding increased from 86,501,471 to a whopping 130,405,502 (that’s 34%). Minus the stock, it also has around $147 million in liabilities. Some investors have also accused the company of pumping and dumping the stock.
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Riot Blockchain can be saved with a thriving bitcoin bull market which pushes prices higher, but in the meantime, the company is bleeding cash like there’s no tomorrow.