Bitcoin miners play high stakes chicken

1 year ago
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“It’s kind of the situation of the last man,” says Fred Thiel, CEO of the American company Marathon Digital Holdings. His cryptocurrency mining company, one of the largest in the world, found itself, like the rest of the industry, in the path of a perfect storm.

Over the past year, the sector has suffered from the fall in the price of bitcoin, combined with jump in energy costs and the increase in mining difficulty – a reflection of the amount of computing power directed at the bitcoin network, which determines the proportion of coins that miners can win.

At the height of the boom of 2021, the profit margin in the mining business rose to 90 percent, Thiel said. But now they have “completely collapsed.” If the price of bitcoin does not rise, he said, there will be “a lot more pain” and firms that have only marginal profits today will find themselves “very underwater.”

Struggling to cut costs, miners are playing a high stakes game. In the spring of 2024, halving — a mechanism built into the bitcoin system that periodically cuts the number of coins awarded by half — will cut mining profits. The goal of the miners is to make sure they are in a strong enough financial position to survive the drop in profits longer than anyone else; as miners give up and leave the network, the proportion of coins won by the rest will increase.

“Any miners that are currently struggling will not be able to survive the halving,” says Jeff Berkey, VP of business development at Foundry, which manages its own mining facilities, a large mining pool and mining equipment market. He explains that this dynamic will cause a stir among the miners to get their homes in order.

Miners will seek to make additional profits wherever they can, whether it be by deploying superior hardware and cooling methods, developing software to closely monitor machine performance, moving to territories with cheaper electricity, or renegotiating the terms of their loans.

Others, such as Geosyn Mining, aim for vertical integration, right down to powering facilities. According to CEO Caleb Ward, the company wants to build its own solar farm to power its machines, avoiding significant costs. “As an industry, we need to be more careful about how we protect against risks,” he says. “It’s not just about shooting at the moon.”

Meanwhile, miners whose financial difficulties prevent them from optimizing their operations are playing a dangerous game of waiting, betting on a rise in the price of bitcoin that may never happen.

“The beauty of halving is that the industry [is forced] To become more efficient, many weaker players will have to go out of business,” says Jeff Lucas, chief financial officer of mining company Bitfarms, which has been working to restructure its finances amid the economic downturn. “The devil is in the details.”

Mining companies are already in the red, but are starting to wind down. Compute North, which owned several large mining enterprises, filed for bankruptcy in September, and Core Scientific, a public miner, did the same December. The rest have to maneuver. Argo Blockchain, also a public company, was forced sell mining hardware And him modern mining centerand Stronghold Digital Mining agreed to debt repayment leave. None of the companies responded to interview requests.

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