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It’s no secret crypto miners are struggling, and more casualties are expected next year.
But as the bear market trudges on, not all companies in the segment face dire circumstances, industry watchers said, as some may even come out stronger.
Core Scientific filed for bankruptcy last week after saying in October it would skip upcoming payments on several loans. The Texas-based miner’s filing came after data center operator Compute North lodged its own bankruptcy in September.
Bitcoin is down about 75% from its all-time high reached in Nov. 2021, making mining less lucrative for companies that took on debt to accelerate growth operations during the bull market.
“This coupled with the massive downward crash the whole sector has seen this year is undoubtedly putting extra financial strain on miners,” Louise Abbott, a cryptocurrency and asset recovery partner at Keystone Law, told Blockworks in an email.
“Combined with the lack of confidence with investors purchasing less, casualties in the mining sector in the first half of 2023 are expected.”
In addition to the struggles of Core Scientific and Compute North, London-based Argo Blockchain said earlier this month it was looking to avoid bankruptcy despite holding “insufficient cash” to sustain operations for much longer.
Iris Energy is also seeking to stay afloat. Its two potential paths forward include expanding its self-mining from 2 exahashes per second (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” during a company update earlier this month.
“I cannot give you a clear answer on where we’ll be in the next week or month or even three months,” Roberts said at the time.
Mining firm Greenridge recently entered a non-binding agreement to settle a $74 million debt with NYDIG. Greenidge said in a statement it planned to offload mining equipment to crypto-focused financial services firm — reducing the loan by up to 90%.
Fred Thiel, CEO of Marathon Digital, declined to speculate on how many more miners could go bankrupt in the coming months. But, he told Blockworks, those that used equipment financing to fund growth are likely to continue facing headwinds.
“If these market conditions persist through the middle of next year, there will likely be significant attrition in the number of miners that remain viable,” Thiel said.
Opportunities for healthier miners
The overleveraged bitcoin miners are the ones who will feel the most heat in 2023, said Andy Long, CEO of bitcoin miner White Rock Management. Buying newer, more efficient mining hardware in quantity at historically low prices will pay off for some, he added.
“Miner capitulation will start to slow down next year, but there is likely still more to come before we turn the corner,” Long told Blockworks. “Miners who have prepared for the volatility and who have strong balance sheets will have a great opportunity to capitalize on the bear market.”
Thiel said that Marathon Digital’s primary focus in 2023 is hitting a hash rate of 23 EH/s by the middle of the year. Marathon’s hash rate, as of the end of November, was 7 EH/s.
The Marathon CEO has also said it could look to expand to international markets and is evaluating various renewable energy opportunities.
As far as potential buying opportunities, Thiel had said earlier this month the company was evaluating whether it could buy assets from Compute North.
“We opted not to purchase any assets from Compute North, and we’re not currently looking to buy any sites that are under development,” Thiel said. “That being said, we’re keeping an eye on the market and how things develop to determine if there might be something of value to Marathon and our shareholders.”
Riot Blockchain is another quickly expanding company seeking buying opportunities 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.
Michael Venuto, a portfolio manager of Amplify Investments’ Transformational Data ETF (BLOK), said the miner he is highest on is Riot, given that it has no debt.
A liquidation of Core Scientific could be good news for firms with a wider risk spread that are able to snatch assets at a reduced rate, Abbott said.
A Riot spokesperson did not return a request for comment.
Abbott added that the bankruptcy of FTX and security breaches highlight a “desperate” need for more regulation, which will help miners weather the crypto winter.
“Ultimately, if the whole sector has more security, the miners will benefit; if people are not investing, the miners will be affected,” she said. “Regulation will add protection to promoting products, corporate governance and investor protection, amongst other things.”