- Bitcoin miners are being forced to choose between selling coins or infrastructure
- Huge expansion loans are now crippling many miners
- Less efficient mining machines are already being turned off as the crypto winter bites
Bitcoin miners are being forced to choose between selling infrastructure or bitcoin as running costs soar while the bitcoin price flatlines. A report from JPMorgan, combined with data from Coindesk, shows that the combination of rising energy costs and the drop in the value of the bitcoin they mine has led to many having to make the difficult decision to either scale back their operations or sell more of what they mine in order to stay in business. The same data reports that the phenomena of less efficient mining machines being turned off first is already happening, with the mining difficulty rating dropping from its May peak.
Huge Expansion Loans Crippling Bitcoin Miners
Bitcoin mining companies are among those hit hardest by bear markets, with tough decisions needing to be made early on in order to survive the period. We saw this in the 2018/19 bear market when mining companies reported huge losses and many had to turn off machines in order to keep costs down, and it seems that history is unsurprisingly repeating itself.
Coindesk reported on Wednesday that cryptocurrency miners both public and private have racked up debts of up to $4 billion in order to finance huge new facilities, especially in North America. These firms are now struggling to pay off their debts, leading to miners having to choose between selling bitcoin, turning machines off, or selling them off – if there are any buyers
It wouldn’t be a surprise to see more than one go bankrupt during this crypto winter, starkly illustrating the difference between those who have planned for a bear market effectively and those who haven’t.
Average Production Cost Dropping
JPMorgan reported that Bitcoin miners’ average cost of production has dropped by almost a fifth in the past fortnight globally; having hovered between $18,000 and $20,000 for most of the year, the aggregate cost of mining a bitcoin has fallen to about $15,000, with the least efficient miners dropping out of the game as the year has passed, reducing the average cost.
This drop has seen both the difficulty rate and the hashrate decline in the last month, and the longer the bear market goes on the more chance there is of miners forfeiting on loans and dropping out of the game entirely…after they’ve dumped their bitcoin.