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Latest Public Miner Developments
After writing about the potential for public miners to surrender and covering Core Scientific’s possible bankruptcy route, there has been a wave of miner announcements and developments that suggest industry-wide risks are taking more shape. The main risk is the lack of cash flow to pay the interest on this debt as miners accumulate debt and profit margins are squeezed. Another risk is the hash rate (ASIC mining machines) used as collateral to secure this debt financing.
Overall, public miners continue to significantly underperform bitcoin in year-to-date performance. This is not a new trend, but now, as miners begin to fall and survivors emerge, the performance gap begins to widen dramatically. While selected “strong” miners of the market are in the 60-70% decline range, miners on the brink of collapse are down more than 90%.
Public miner shares are valued in bitcoin
Starting with Core Scientific, there is a laundry list of firms with debt, including BlockFi, NYDIG and Anchor Labs. In total, creditors are owed about $1 billion, and even MassMutual Barings (the investment company owned by Mutual Life Insurance Co.) is on the short list.
Source: Basic Science Quarterly Documentation
Argo Blockchain is one of the lowest this year, down 93.23%. They released their biggest mining news of the week after announcing that a planned $27 million fundraiser had fallen through. Earlier this year, NYDIG agreed to a $70.6 million loan with Argo. Argo also used some of its bitcoin holdings to reduce its BTC-backed loan obligations from Galaxy Digital in August.
Iris Energy highlighted the company in its financial update this week “currently able to generate $2 million in gross monthly profit from Bitcoin mining, compared to the required monthly principal and interest payment obligations of $7 million.” After borrowing $71 million from NYDIG, which was secured by ASIC machines for one of its outstanding loans and at risk of needing a debt restructuring, Iris has about 36,000 machines that can change hands fairly quickly. If they can’t find a new deal by Nov. 8, the company will default on those loans.
Stronghold Digital Mining just this week entered into a debt restructuring agreement with NYDIG, providing a fleet of 26,200 miners in exchange for $67.4 million in debt relief. Stronghold also extended another tranche of debt to be repaid over 36 months instead of 13 months to buy more cash runway. The moves were a strategic move to “quickly liquidate our balance sheet and increase liquidity.”
CleanSpark, which is in a growth position and has recently been able to buy ASICs at lower prices, sold more of its bitcoin holdings (mined 532 BTC and spent 836) last month to support growth and operations. While many large miners still maintain HODL strategies and bitcoin balances, strong miners will use those holdings for growth opportunities or financing operations as needed.
TeraWulf, another bitcoin miner down 92.38% year-to-date, has a relatively high debt-to-equity ratio compared to other miners (86%) and It has a debt of 120 million dollars It will begin to be repaid in the spring of 2023 at an interest rate of 11.5%.
Since larger private lenders like BlockFi and NYDIG don’t disclose how much mining debt they have on their balance sheets, it’s impossible to know exactly how exposed some of these lenders are to the broader mining industry bankruptcy risk on the horizon. These loans can be an acceptable part of broader funding activities and are well equipped to handle default risk, but it is a dynamic worth highlighting and better understanding as more miners face debt default and/or restructuring pressure over the next few months. we expect to face .
Marathon Digital Holdings CEO Fred Thiel said 20 or more public miners could face bankruptcy in what he sees as a perfect storm for the industry. There is no doubt that the bigger, better-positioned miners are looking for potential, favorable acquisition deals to emerge soon. Like every other industry before it, major industry consolidation is inevitable, and public bitcoin mining seems poised to enter the next phase of its life cycle. It is likely that we will move to a world where there are only a few big bitcoin giants, with a few smaller miners behind them.
Likewise, it’s entirely possible that as this cycle moves from the lower right quadrant to the left, cash-rich energy producers, both public and private, begin stockpiling ASICs to deploy in preparation for the next bull phase.
Source: Alchemy
Last Note
The biggest risk inherent in the bitcoin market today remains weak players hanging by a thread beneath the surface. The lack of meaningful price volatility in this $20,000 range is certainly encouraging from the point of view of buyers and sellers finding temporary equilibrium. But as the frequency of miner problems continues to increase, the maximum pain for industry participants is clearly lower, with still more fund-based leverage available in the market. The bulk of the selling has taken place in bitcoin, which is now at $20,000, but whether the marginal buyer is big enough to stop the potential selling pressure on the horizon has to be questioned.
We suspect that the pressure on crypto lenders that survived the summer contagion is starting to increase due to the increased headwinds that some miners are facing in this environment.
