Illegal gold miners in Niger.
Photographer: CRISTINA ALDEHUELA/AFPDavid Pan
Welcome to Bloomberg Crypto, our twice-weekly look at Bitcoin, blockchain and more. If someone forwarded this to you, sign up here. In today’s edition, David Pan checks in on the shifting economics of Bitcoin mining:
Money-printing machines morph into fool’s gold
Bitcoin mining machines were a hot commodity during last year’s historic bull market. The digital money printers were commanding over $10,000 apiece and a market even developed for the computer rigs since manufacturers couldn’t meet demand.
Everyone got in on the party. Miners raised of dollars from the equity market and lenders to buy the setups, which often had year-long waits for delivery. Retail investors piled into the shares of those companies, pitched as a diversified way into what has often been called digital gold. Then, the crypto crash happened, proving that buying the picks and shovels isn’t always the savvy move.
To illustrate that, look no further than Kennerdell, Pennsylvania-based Stronghold Digital, which ended up handing over 26,600 rigs to its lender as part of a loan restructuring that allowed the miner to eliminate nearly $70 million in debt. Some of the most popular models are now going for less than $4,000.
“Mining machines are being sold either out of distress or miners trying to be more prepared for the future,” said Nick Hansen, chief executive at Luxor Technologies. “Miners really don’t know what’s coming. The best way to maneuver is by having a stack of cash.”
Bitcoin-hoarding miners have already been selling their token holdings to stay afloat. Mining companies sold a record coins in June, and July saw the second-highest monthly this year. For those who don’t have any more inventory to sell or hope to hang on longer, jettisoning mining gear is turning out to be one of the few ways to raise liquidity.
However, Stronghold’s move may also signal a fundamental change in miners’ strategy to survive the current crypto winter. Chief Executive Greg Beard said Stronghold’s revenue is expected to be largely unchanged despite returning the rigs, as it continues to utilize other equipment to mint coins.
The company also plans to sell power back to the local grid now that energy demand is soaring, hopefully making enough to offset the revenue lost from the diminished mining operations. Then there is Riot Blockchain, which shut its Texas operations and made about $9.5 million in power credits during a severe power crunch induced by the record heat wave in early July.
In an ironic twist, the firms often criticized for their excessive energy use may now be on the verge of becoming arbitragers in the power market. Whether they’re able to survive a prolonged downturn in Bitcoin prices and a glut of mining rigs remains a bigger question -- and the answer could help determine whether “picks and shovels” is indeed a viable way to bet on crypto.
Charting it out
Merge Mania
Excitement around Ether's upgrade has helped push its price toward $2,000
Source: Bloomberg
Counting it out
- 840,000 The number of users that Nigeria says have downloaded the E-Naira app for its digital currency since October. The nation's central bank is targeting 8 million users in the second phase of the digital currency's expansion.
Hearing them out
What we’re reading (and writing)
- Tether Drops Cayman Islands Firm in BDO Italia Attestation Deal
- Coinbase Insider Trading May Be Wider Than US Case, Study Says
- Activity in SPACs Reaches Lowest Level in Five Years As Boom Fades Quickly (Wall Street Journal)
- Crypto Slashes TV Ads in Selloff as Tom Brady Spot Disappears
- They Lost Crypto in the Crash. They’re Trying to Get It Back
- The Pursuit of Crypto Happiness: Wen Lambo?
Thank you for reading. We welcome all feedback at [email protected].
Follow us on Twitter at @crypto. To access cryptocurrency news and analysis on the Bloomberg Terminal, type TOP CRYPTO
— With assistance by Vildana Hajric
