Ben Strack

Certain crypto miners continue to seek survival after revealing financial struggles in recent months, while others remain better positioned than rivals to continue expansion.&nbsp;&nbsp;



Marathon Digital CEO Fred Thiel told Blockworks in an email that the company is evaluating whether it could buy assets from Compute North, a crypto mining data center operator that <a href="https://blockworks.co/compute-norths-business-goes-south" target="_blank" rel="noreferrer noopener">filed for bankruptcy</a> in September.



Marathon hired the restructuring team at Weil Gotshal — the miner’s corporate attorneys — to evaluate opportunities from the Compute North Bankruptcy, Thiel added.



The company declined to comment further.&nbsp;



Marathon said in <a href="https://ir.marathondh.com/news-events/press-releases/detail/1298/marathon-digital-holdings-announces-bitcoin-production-and" target="_blank" rel="noreferrer noopener">a Dec. 6 update</a> that $22 million of its remaining $42 million in deposits with Compute North are recoverable. Recoverability of the other $20 million is subject to bankruptcy proceedings.



The company produced 472 bitcoins in November, bringing its total to 11,757 BTC, as of Nov. 30. The company chose to reduce its revolver borrowings from $50 million as of Nov. 9 to $30 million, as of the month’s end. It ended November with $61.7 million in cash on hand.



<a href="https://blockworks.co/news/marathon-digital-focused-on-organic-growth-in-near-term-despite-buying-opportunities" target="_blank" rel="noreferrer noopener">Thiel told Blockworks</a> last month that Marathon could look to purchase assets from struggling miners, such as a hosting site, if it made strategic sense. Marathon, which has a current hash rate of about 7 exahashes per second (EH/s), plans to hit 23 EH/s by mid-2023.



Marathon Digital’s stock price, down about 85% year to date, is down about 47% over the past month.&nbsp;



Riot Blockchain is another quickly expanding company <a href="https://blockworks.co/news/riot-blockchain-ceo-firm-is-one-of-mining-spaces-best-positioned-acquirers">seeking buying opportunities</a> during the downturn. It seeks to grow its current hash rate capacity of 7.7 EH/s to 12.5 EH/s by the first quarter of 2023.



The company produced a record 521 bitcoins in November, it revealed this week. Despite being an all-time high, the number fell short of its projected 660 BTC, according to the company.



“In order to ensure more predictable results going forward, Riot will be transitioning to another mining pool which offers a more consistent reward mechanism,” Riot CEO Jason Les said in a statement.



The company sold 450 bitcoins last month, which generated about $8 million. The company held 6,897 BTC, as of Nov. 30.



Riot’s stock price is down about 14% from a month ago and roughly 82% from the start of the year.



<h3 class="wp-block-heading">Struggling miners seek survival</h3>



Matthew Sigel, head of digital assets research at fund manager VanEck said in a webinar this week that he predicts bitcoin could drop as low as $10,000 next year amid a wave of miner bankruptcies.&nbsp;



Core Scientific revealed in <a href="https://d18rn0p25nwr6d.cloudfront.net/CIK-0001839341/5d07f815-c426-4db9-b79a-a38d616cf35a.pdf" target="_blank" rel="noreferrer noopener">filings</a> in October that <a href="https://blockworks.co/core-scientific-stock-price-plummets-70-as-it-considers-bankruptcy" target="_blank" rel="noreferrer noopener">it was considering bankruptcy</a>, and Argo Blockchain followed by saying a potential capital injection of $27 million it was expecting <a href="https://blockworks.co/crypto-miner-consolidation-imminent-as-some-industry-players-struggle" target="_blank" rel="noreferrer noopener">had fallen through</a>. 



“Argo continues to engage in financing discussions…to provide the company with working capital sufficient for its present requirements,” the company said in a statement Friday. “A further announcement will be made in due course.”



An Argo spokesperson declined to comment further.



Argo Blockchain said it mined 198 bitcoins, or bitcoin equivalents, in November — down from 204 BTC in October. The decrease was primarily due to an increase in the bitcoin network difficulty last month, the company said. The company’s hashrate capacity continues to be 2.5 EH/s.



Meanwhile, Core Scientific, which had not yet published its November production update as of Friday morning, has roughly self-mined between 45 BTC and 50 BTC each day this week, according to <a href="https://twitter.com/Core_Scientific/status/1601230408837996545" target="_blank" rel="noreferrer noopener">tweets</a>. 



Core Scientific did not return a request for further comment.&nbsp;



Iris Energy, which also previously expressed its <a href="https://blockworks.co/bitcoin-miner-iris-energy-says-its-bad-debt-contained-in-rotten-arms" target="_blank" rel="noreferrer noopener">financial distress</a>, is also seeking to stay afloat and eyes expansion. Its two potential paths forward include expanding its self-mining from 2 EH/s to 5.4 EH/s — its preferred strategy — or third-party hosting. Iris Energy co-founder Daniel Roberts called the latter option “a backstop.”



“If we need to do it to survive — if we need to do it because the market’s deteriorated further, the data centers are there, and they’re ready,” he said. “Come up with your computer, plug it in, pay us a margin and life goes on. But that’s not who we want to be.



“There is no silver bullet,” Roberts added. “I cannot give you a clear answer on where we’ll be in the next week or month or even three months.”



The Australia-based bitcoin miner said in an SEC filing last month that it could generate $2 million in monthly gross profit by mining bitcoin, while monthly principal and interest repayments on its debt stands at $7 million.



But Iris Energy executives said during a market update Wednesday that it had $47 million in cash and had $75 million in prepayments to Bitmain for machines. The company also signed a deal with in September to sell up to $100 million in equity to investment bank B. Riley over the next two years.



JPMorgan analysts Reginald Smith and Charles Pearce said in a Dec. 7 research note that Iris Energy is an “extremely efficient operator” that generates the most bitcoin per EH/s of capacity of any other publicly traded miner.&nbsp;



“Management had the foresight to structure their loans without corporate guarantees and recently reduced its non-energy related operating expenses to ~$2 [million] a month, which we think gives them about a year of runway,” the analysts wrote. “In short, the company is managing the things it can control very well. That said, market conditions are extremely difficult. We think shares are dead money for the foreseeable future, barring a bitcoin rally or dramatic decline in hashrate.”



Iris Energy’s stock price — down more than 90% in 2022 — was up about 2% Friday, as of 4:00 pm ET. 



In terms of fundraising prospects, Roberts said Iris Energy is still receiving term sheets.&nbsp;



“There’s a lot of interest in this sector still in funding good businesses with good business plans,” he added. “The issue for us is that we’ve got to make sure that the right funding [prospects] are taken on.”



Players in search of capital may have to fundraise at a lower valuation.&nbsp;&nbsp;&nbsp;



Crypto firm BlockStream was seeking funding at a valuation lower than the $3.2 billion valuation it garnered last year, Bloomberg <a href="https://www.bloomberg.com/news/articles/2022-12-06/crypto-firm-blockstream-seeks-fresh-funding-at-a-lower-valuation-in-tight-market?utm_content=crypto&amp;utm_campaign=socialflow-organic&amp;utm_source=twitter&amp;utm_medium=social" target="_blank" rel="noreferrer noopener">reported</a> Tuesday. The capital it is seeking would be used to expand capacity to host crypto miners. 



BlockStream did not immediately return a request for comment.



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Crypto Miners Mulling Options as Downturn Weighs Heavily

David Canellis

Bitcoin miners are facing a tough few weeks ahead as meager prices threaten to render the network service unfeasible for anyone but the largest operators.



After shedding a quarter of its value throughout the FTX saga, the price of bitcoin is hovering around $16,300, down 66% year to date. Electricity prices —- which directly impact bitcoin mining profitability — in the US have jumped by about 13% in that time.



Bitcoin fading as electricity rates spike is obviously bad for miners: It can turn bitcoin mining into a loser’s game. One calculator offered by <a href="https://insights.braiins.com/en/cost-to-mine" target="_blank" rel="noreferrer noopener">Braiins</a> shows the cost of producing 1 BTC with a top-of-the-line Bitmain Antminer S19j is currently $34,732 — more than double bitcoin’s price.&nbsp;



And that’s based on electricity prices at $0.06 per kilowatt hour; the US Bureau of Labor Statistics <a href="https://www.bls.gov/regions/midwest/data/averageenergyprices_selectedareas_table.htm" target="_blank" rel="noreferrer noopener">reported</a> a national average at $0.166 last month. Data visualization portal <a href="https://en.macromicro.me/charts/29435/bitcoin-production-total-cost" target="_blank" rel="noreferrer noopener">MacroMicro</a> shows a lower global average cost, around $22,300, still 37% above bitcoin’s current price.&nbsp;



Although, some large scale mining operations are vertically integrated. Firms like Greenidge control their own power sources, which makes the whole process significantly cheaper.&nbsp;



Still, margins are thin across the board; one indicator built by investment unit Capriole <a href="https://twitter.com/caprioleio/status/1594671729917714437" target="_blank" rel="noreferrer noopener">measures</a> the ratio of bitcoin sold from miner reserves to their overall balance — it has jumped 500% in the past month, now at its highest reading in years.



“Higher equals more selling. We also sum the miner output over 30 days and compare it to average miner reserves held over the last 30 days, we think it highlights high miner selling very well,” Charles Edwards, founder at Capriole, told Blockworks.



Bitcoin miners have indeed been selling regularly, but the total sum of their treasuries has more-or-less held steady this year. In fact, miners together hold 8,184 more bitcoins than at the start of 2022, per CryptoQuant.



<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="988" height="546" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg" alt="" class="wp-image-39902" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg?w=988 988w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg?w=50 50w" sizes="auto, (max-width: 988px) 100vw, 988px" /><figcaption>Source: <a href="https://cryptoquant.com/" target="_blank" rel="noreferrer noopener">CryptoQuant</a></figcaption></figure>



Capriole’s indicator may be picking up a round of dumps, just as crypto reckoned with the impending collapse of FTX and its ensuing contagion. Bitcoin miners collectively sold 4,502 BTC between Nov. 7 and Nov. 8, according to CryptoQuant, a haul potentially worth up to $93 million.



Bitcoin’s price collapsed 24% around the same, dropping from $20,600 to under $15,800. Measuring miners’ direct impact on that move is difficult, but it’s clear that capital preservation is front-of-mind.



Bitcoin miners still hold more than 1.85 million BTC worth about $30.5 billion, representing almost 10% of the supply.&nbsp;



Loans backed by bitcoin miners to buy more bitcoin miners



Another spanner: A raft of major operators took out <a href="https://blockworks.co/news/crashing-prices-expose-bitcoin-mining-industrys-addiction-to-leverage" target="_blank" rel="noreferrer noopener">high-interest loans</a> — in many cases backed by mining rig inventories — at the peak of the bull market last year. Sky-high prices made it en vogue to acquire as many mining rigs as possible, as quickly as possible.&nbsp;



Those inventories have since been delivered and are now mining away in hopes of actually paying for them — giving us the unusual mix of record high hashrate and crumpled prices.&nbsp;



Indeed, Bitcoin’s current thunderous hashrate is fueled by a fiscal need to generate revenue as soon as possible to pay back decisions made more than one year ago. This has driven mining difficulty (which impacts the odds of successfully mining bitcoin) through the roof while vaporizing operational margins.



Bitcoin miners have faced the grim reality of paying back those loans in a bear market for months now. Core Scientific, one of the largest miners in the industry by hashrate, <a href="https://www.cnbc.com/2022/10/27/bitcoin-miner-core-scientific-warns-it-might-go-bankrupt-stock-plunges.html" target="_blank" rel="noreferrer noopener">warned the SEC</a> last month that it would not be able to meet its loan obligations and could go bankrupt.



Core Scientific is now selling more bitcoin than it creates to stay afloat, having cashed in most of its bitcoin stash over the past few months. The firm has reported $435 million lost in the year’s third quarter, bringing its year-to-date damage to $1.7 billion​​ and share prices losses to 98%.



Iris Energy, a smaller but sizable operation, <a href="https://www.sec.gov/Archives/edgar/data/1878848/000114036122042419/ny20005141x6_6k.htm" target="_blank" rel="noreferrer noopener">disclosed</a> default on loans worth $108 million this week. The firm has switched off mining rigs it used as collateral for expansion loans, similarly on the brink of bankruptcy.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" class="wp-embedded-content" sandbox="allow-scripts" security="restricted" src="https://flo.uri.sh/visualisation/11930341/embed#?secret=42JEnL4ykK" data-secret="42JEnL4ykK" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption>Bitcoin’s hashrate often falls when the price does. Not this time.</figcaption></figure>



Even diamond-handed Marathon <a href="https://ir.marathondh.com/news-events/press-releases/detail/1288/marathon-digital-holdings-announces-bitcoin-production-and#:~:text=The%20Company%20has%20not%20sold,to%20fund%20monthly%20operating%20costs." target="_blank" rel="noreferrer noopener">warned</a> shareholders earlier this year that it might start selling its mighty bitcoin stash, having historically projected intentions to hold indefinitely. The firm has mostly financed itself on stock sales and other debt raises, <a href="https://markets.businessinsider.com/news/currencies/marathon-digital-stock-price-bitcoin-bond-sale-proceeds-sec-subpeona-2021-11" target="_blank" rel="noreferrer noopener">including</a> a $500 million bond sale last November, as bitcoin was retreating from all-time high.



Todd Esse, co-founder at mining investment firm HashWorks Digital Industries, expressed to Blockworks that the next 30 days will prove critical for bitcoin miners just holding on.



“I think we’re getting to a point where we’re going to start seeing a lot of rings dropping off over the next 30 days, if we stay down at this level or go even lower,” Esse said, adding that he sees room for only two large mining outfits to retain the bulk of their bitcoin.



Falling energy prices could offer bitcoin miners a glimmer of profitability, albeit distant. “The market is being very selective about who can fit in right now, and it’s very tight.”



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



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iris energy