Bitcoin miners are finally seeing a glimmer of hope after a long and harsh crypto winter. The companies that are responsible for introducing new bitcoin into the market have received a much-needed boost from the cryptocurrency’s recent rally. With prices soaring above $30,000 this year and electricity prices falling, mining companies have seen their profitability increase. The 30-day average of mining revenues has reached $27.34 million a day, the highest level since June 2021, according to data from Blockchain.com.
This is a much-needed relief for miners who have struggled to service their large debt burdens as revenues remained low, ranging between $15 million and $21 million for most of the second half of 2022. Although they are still a long way off from their peak of $61.2 million, which was hit in November 2021, miners’ debt-to-equity ratios now look much healthier. According to Jaran Mellerud, an analyst at bitcoin mining services company Luxor, “Many public miners were on the brink of bankruptcy at the end of last year. At the current bitcoin price, these companies’ cash flows have substantially improved, and most of them should have no problem paying their obligations.”
Mellerud also added that many companies had restructured and paid down debt over the past few months, which has helped to improve their debt-to-equity ratios. Marathon Digital Holdings’ debt-to-equity ratio has dropped to 0.5 from 2 since the start of this year, while Greenidge Generation Holdings’ has dropped to 5.8 from 11.7, according to data from Luxor. This spring thaw has seen investors flock back to publicly traded crypto mining companies. Marathon and Riot Platforms have seen their share price more than triple this year, while the Valkyrie Bitcoin Miners ETF is up 162%, and Greenidge has gained 137%. However, they have all still lost money since early 2022.
Bitcoin mining is the process by which a network of computers validates a block of transactions on the blockchain. Miners are rewarded with bitcoin for completing a block, competing against other miners by solving intricate maths puzzles with energy-intensive computing systems, meaning electricity comprises a significant chunk of their operating costs. Declines in power prices, particularly in the U.S., have eased pressure on company margins, according to analysts at BTIG, who said the electricity cost for producing one bitcoin has fallen about 40% from the end of last year. That means that despite both the computing power available on the network and mining difficulty rising steadily to new all-time highs – meaning it should take more power to mine one block – the 30-day average cost-per-transaction for miners has fallen to its lowest level since September, according to data from Blockchain.com.
Miners cannot rest on their laurels, however, as their fortunes are tied to bitcoin’s capricious price trajectory. Kevin Kelly, head of research at Delphi Digital, said, “If we see bitcoin top out and consolidate, the run-up in miners may do the same. We expect to see more volatility as we head into summer.” However, he does see a favorable environment for crypto persisting through 2023 compared to last year. Despite improvements in their balance sheets, many miners still have plenty of debt to pay down and are still struggling, according to Luxor’s Mellerud. “The bitcoin price increase has bought these companies time, but it would be detrimental for these companies if it were to fall back down to $20,000,” he said.
Most companies are focusing on debt reduction rather than spending on new equipment, BTIG said, even as the estimated cost of new mining rigs has dropped around 69% since the end of 2021. There are some exceptions, however, with CleanSpark taking advantage of falling prices to purchase 45,000 new mining rigs, which would nearly double its computing power. A rapid rise in power prices or a fast fall in bitcoin could usher in a new cold spell. For now, however, the sun is shining. “I don’t think we’re completely out of the woods, but I think the worst is behind us,” said Marcus Sotiriou, an analyst at digital asset broker GlobalBlock.