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2022 has not been that easy for the Bitcoin mining industry. The BTC mining companies have endured a lot of storms in the past year. The industry has seen surges in interest rates that had apparently raised the cost of capital. Following this, Bitcoin mining became less profitable as the hash rate subsequently crawled up. In addition to this, Bitcoin’s price tumbled as well as the treasury management strategies failed the Bitcoin mining companies massively.
The result of the storm had a great impact on the stock prices of the five public mining giants by hash rate. Among the stocks that traded down in 2022, Core Scientific ($CORZ), Riot Blockchain ($RIOT), Bitfarms ($BITF), Iris Energy ($IREN), and CleanSpark ($CLSK) were down 99%, 85%, 91%, 92%, and 79%, respectively.
Does this mean that Bitcoin has faded out? Or is BTC destined for $0? Well, absolutely not! This does not also necessarily mean that public mining corporations will vanish. However, this means that it requires a little reconstruction and strategy rationalization. This will help the Bitcoin mining industry to get even better than what it was earlier.
Bitcoin Mining Industry: What Were The Issues Previously?
For the last couple of years, some bitcoin miners have held on to Bitcoin (BTC) that they have mined. Rather than using debt and other capital to finance their operations, they opted for this option. Two things are required for this to work really well:
- People are eager to get involved in Bitcoin because the price is increasing, so they don’t want to miss out.
- Bitcoin is an attractive investment because the cost of capital is low. So, more people join in.
However, these things proved to be right in the past few years. Thus, we have this really bizarre situation where the Bitcoin mining companies who are actively participating in Bitcoin mining, were not specifically making money through BTC mining. That said, it is a bit of a statement. For related Bitcoin mining reads, feel free to visit https://cryptoventurenews.com/category/mining/bitcoin-mining/.
Considering the theoretical zone, a Bitcoin mining company makes money in the following procedure:
- The BTC mining company possesses Bitcoin mining machines that mine Bitcoin.
- To pay for its expenses, the company exchanges a portion of the mined BTC.
However, in our offbeat world, a BTC mining business makes money through the following procedure:
- The BTC mining company possesses Bitcoin mining machines that mine Bitcoin.
- To pay for its expenses, the company borrows from the debt and equity markets.
This is nevertheless not always the case. That said, there are mining companies such as Marathon Digital. The company had stuffed all the Bitcoins it had mined in the past 26 months on its balance sheet. The company has not opted to sell any of it to pay for its operations.
Frankly speaking, this does not even make any sense. In the long run, companies should believe that they should make more money than they cost to make in the long run – without relying on capital markets. A business like that shouldn’t exist otherwise.
So, you might be hurt when our offbeat world moves to a different world where:
- The Bitcoin price is decreasing
- Capital cost is increasing
- Bitcoin mining is getting even more competitive.
Well, all of these occurred in the last year. So, we have recently seen Core Scientific file for bankruptcy, Argo restructured, and capital infused to avoid bankruptcy, and Bitfarms’ CEO resigned.
How To Make The Bitcoin Mining Industry Better?
What do you think will be next? We have already seen that public Bitcoin mining companies are struggling. The scenario is quite pessimistic. However, there are reasons for being optimistic as well. Let us see how.
Going back to the theoretical zone, the BTC mining companies will definitely mine when the conditions are favourable. On the contrary, the companies will cease mining when the conditions are not in their favour or are not profitable enough. When required, the companies can easily shut down the mining machines.
Nonetheless, in practical life, the Bitcoin miners will never shut down and they would not adjust their operations based on Bitcoin or electricity prices. Rather, they would mine cryptocurrency consistently via the market swings. Consequently, some sort of treasury management strategy is required that goes beyond “hold all Bitcoin”.
The treasury management strategy must involve some sort of constant exchange of a portion of the mined BTCs to keep funding the operations. There is a possibility that bitcoin’s price will eventually drop or electricity’s price will increase or both!
Public market investors value both predictable cash flows and upside valuation potential. Despite having the latter in spades, public Bitcoin mining companies lack the former. The Bitcoin mining industry is governed by markets that are unpredictable and unevenly profitable, which is why treasury management should anticipate and mitigate these issues.
This strategy would not permit a crypto mining business to hold on to as much Bitcoin (BTC) as possible to sell at an increased value during a bull market. However, it would permit the mining business to quite easily handle the market stress. In addition to this, cryptocurrency miners are not in the business of timing markets but in the business of mining cryptocurrency.
That said, whatever happens now, at the very least we should anticipate that the Bitcoin mining companies will revisit their “hold all the mined Bitcoin” strategy. This must better equip them to survive well into the future. We also assume that cryptocurrency miners will learn something from this.
Our discussion for today has come to an end. I appreciate you taking the time to read it all the way through. This was a pleasure to share with you. We would appreciate hearing your thoughts on this. You can request an article from us by contacting — [email protected] or leaving your request in the comment section below.
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