November was another arduous year for bitcoin miners, with difficulty hitting new all-time highs and bankruptcy fears being felt within the major listed companies.
Mining difficulty, which determines the amount of energy required to mine bitcoin and thus the underlying profit, reached new heights as the value of bitcoin (BTC) plummeted following the collapse of FTX at the start of the month.
Mining difficulty increases at an inverse correlation to the price of bitcoin mining rewards – Source: bitcoin.com
Diminishing returns on mining rewards have impacted bottom lines, with year-to-date stock results of publicly traded mining companies as follows:
- London-listed Argo Blockchain down 93% YTD 80% (-15% MoM)
- Toronto-listed HIVE Blockchain down 84% YTD (-35% MoM)
- Nasdaq-listed Hut 8 Mining Corp (TSX:HUT). down 85% YTD (-49% MoM)
- Nasdaq-listed Marathon Digital Holdings down 82% YTD (-55% MoM)
- Nasdaq-listed Riot Blockchain down 81% YTD (-38% MoM)
Bankruptcy fears have dogged the Nasdaq-listed miner, which was once the world’s largest by market value.
With US$32mln in the bank and revenues tanking, Core Scientific announced that it could run out of cash before the end of the year
“Depending on our assumptions regarding the timing and ability to achieve more normalized levels of operating revenue, the estimates of amounts of required liquidity vary significantly,” the company stated in its third-quarter earnings call, adding: “Similarly, it is very difficult to predict when or if bitcoin prices will recover or energy costs will abate."
More headwinds to come
Troubling macro conditions will continue to plague the bitcoin mining sector heading into the festive season.
Mining difficulty could likely reach new highs, “which is honestly a good thing for the Bitcoin network, but again, it's part of that perfect storm that's causing a lot of issues,” said Brendon Sedo at Core DAO, a Layer-1 blockchain with a novel hybrid consensus mechanism that takes into account each validators’ Bitcoin mining power.
Sedo noted other critical headwinds that need to be addressed.
“I think there’s going to be some miners going bust,” predicted Sedo, particularly since declining GPU prices have made the barrier for entry a lot lower.
Miners are also having to capitulate on their bitcoin reserves, a trend that has been happening all year and could only be exasperated in the months to come as margins continue to be squeezed.
But it’s not all grim news for bitcoin miners, even if there is some consolidation to be expected in the market.
“If you can make it through this, whether through a unique capital structure, or if you’re really efficient with your energy costs, then there’s a really bright future, especially if the bitcoin price goes up again, which I’m a firm believer that it will,” stated Sedo.
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