As BTC Price Continued to Decline in 2022, Crypto Miners with Large Loan Agreements Were Forced into Selling Bitcoin: Report

2021 was quite the ride for the cryptocurrency mining industry, according to an update from Compass Mining.

Financial analysts predicted $100,000 Bitcoin prices. Miners reportedly “touted huge purchase orders and deployments. And stock prices seemingly couldn’t go downward.”

By the end of that year, however, Bitcoin had “dropped – reaching a price of $46,100 from a previous high of $69,000 just weeks before,” the team at Compass Mining wrote in a blog post.

The trend only “intensified in 2022.” What started as a year of promise “ended with high-profile bankruptcies, collapses and capitulations.”

As mentioned in a blog post, Bitcoin miners were “still bullish early in 2022.” In fact, some miners “bought Bitcoin inside of just mining it.” For example, on Jan. 10, 2022, Bitfarms (BITF) announced it had “purchased 1,000 Bitcoin at an average price of $43,200, increasing its Bitcoin holdings, at the time, by 30%.”

Argo Blockchain (ARBK) followed suit and “purchased 172.5 Bitcoin during the second half of January 2022.” Although the price was not disclosed, the Bitcoin price range during the period “was between $30,000 and $36,000.”

With the bear cycle in full low and Bitcoin falling in price throughout the first two quarters of 2022, both these miners “would end up selling their coins at a significant discount to improve their liquidity.”

As noted in the update from Compass Mining, Bitcoin mining “at scale is still predominantly in its infancy and even some of the older operators like Hive Blockchain (HIVE) and Hut 8 (HUT) have only been mining for around five years.”

Having gone through a full Bitcoin cycle, normally a period of four years, they’ve had the knowledge and experience of “navigating through each of the cycles.” Both miners “have little debt on the balance sheet, have been cautious with their growth strategies and probably have sufficient runway to navigate the remainder of the bear cycle.”

Many miners “utilized the dilution lever during 2021 and a few started to take advantage of a more mature debt market in 2022, with competitive rates making it accessible to borrow large sums to pay for growth in facilities and hashrate.”

Argo Blockchain, Bitfarms, Iris Energy (IREN) and Marathon Digital (MARA) all borrowed significant sums “from lenders such as Galaxy Digital (GLXY), New York Digital Investment Group LLC (NYDIG) and Silvergate Capital Corporation (NYSE:SI).” Loans were generally “collateralized with Bitcoin, mining rigs and infrastructure.”

The continued bear cycle and fall in price of mining rigs “has now put a number of these miners in a precarious financial position, with some major Bitcoin miners recently informing the market that they only have limited cash flow to manage more than a few more weeks.”

The most notable example was Core Scientific (CORZ), “one of the largest miners in the world, with over 24 EH/s of co-location and self mining.”

Core announced on Dec. 21 it “was voluntarily filing for Chapter 11 after considering all the available options.” The company “has been having significant cash flow problems caused by the increased costs of energy and the reduction in the price of Bitcoin.” Interestingly, the company plans “to continue mining Bitcoin while it sorts out its finances.”

The Compass Mining team added in their report:

“Despite the Bitcoin price falling 68% and Bitcoin miner share prices falling on average 91% from their 52-week high prices, this downturn hasn’t prevented miners from growing their hashrate during the year. Most of the miners in the table below have managed to grow by at least 100% year-to-date.”

CleanSpark managed “to grow its hashrate from 1.9 EH/s at the start of the year to 6.0 EH/s, or about 62,000 miners under its direction.”

Bit Digital (BTBT) and Riot Blockchain receive special mentions “for their increase in hashrate in 2022, by 157% and 148%, respectively.”

Iris Energy is “one interesting backward case, as the company recently defaulted on its ASIC collateralized loan with NYDIG.”

Iris was limited “on the recourse of the default because of its financial planning and use of a special purpose vehicle (SPV) to shield the liability from the main company, leaving NYDIG with a debt exceeding $103 million and miners effectively worth $65-70 million.”

What impact this “will have for miners wishing to use this debt lever in the future is unknown.”

Riot Blockchain “produced the most Bitcoin in 2022 with a total of 4,877.”

This total was “achieved with the company having to curtail its energy throughout the year regularly.” Fortunately, unlike most of the miners in the table above, the company “signed a fixed power purchase agreement (PPA), contracted to April 2030.”

Bitfarms came close “with 4,672 Bitcoin mined as of Nov. 30, but the company announced on Dec. 21, 2022, that it had achieved another milestone with its 5,000th Bitcoin mined for the year.”

CleanSpark has “had a great year in terms of growth and Bitcoin production, achieving 4,157 Bitcoin year-to-date at a rate of 127.7 Bitcoin per EH/s.”

This hashrate was only “bettered by Iris Energy and Bitfarms, which have both continued to provide consistency of mining output throughout the year, achieving 130.1 EH/s and 128.3 EH/s, respectively.”

As noted in the update, the 2021 bull cycle “saw many of the North American miners hodl their Bitcoin at all costs.” As the price continued to fall in 2022, miners with significant loan agreements were effectively “forced into selling their Bitcoin to cover their debt interest and capital repayments.”

Bitfarms reportedly “sold 7,309 of its hodl, a figure that includes the 1,000 Bitcoin it had purchased in January.” The company has “started to repay the capital on its loans with highest interest rates and greatest leverage, thereby helping to improve and strengthen its balance sheet.”

CleanSpark and Iris Energy both “adopted a different strategy than the majority and sold their Bitcoin regularly throughout both cycles to cover their operational costs and grow their hashrate, purchasing the latest S19 and S19j Pro miners.”

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