After a $72 million bailout offer from creditors, fears have been expressed regarding the overall sustainability of the Bitcoin trading community amid a lengthy bear market in light of Basic Scientific’s recent bankruptcy proceedings. To get out of their unsustainable high debt levels, it turns out that public Bitcoin users have obligations of about $4 billion.
During the bull market of 2021, the Bitcoin mining industry racked up a huge debt load, which negatively impacted their financial situation during the ensuing bear market. According to predictive analytics by Hashrate Index, the top 10 crypto mining debtors collectively owe more than $2.6 billion.
The largest debtor in the group, Core Scientific, has applied for Chapter 11 insolvency protection in Texas due to dropping sales and BTC prices. As of September 30th, Core Scientific had $1.3 bn in commitments on its income statement. Marathon, the second-largest debtor, is the primary owner of the $851 million in convertible note liabilities. Marathon avoids bankruptcy by allowing the debtors to convert the convertible notes into equity.
The bulk of Bitcoin miners is going through a restructuring process to pay off debt, including Greenidge, the third biggest debtor. Publicly listed bitcoin mining companies have a high debt-to-equity ratio, which points to a significant risk for the industry.
The Hashrate Index indicates that most industries consider a debt-to-equity ratio of two or above to be risky. The graph below shows how some of the more well-known Bitcoin miners currently have exceptionally high debt-to-equity ratios. Given that more than 50% of the 25 publicly traded bitcoin miners display extraordinarily high debt-to-equity ratios, the mining industry may suffer possible restructurings as well as bankruptcy procedures unless the bulls mount a comeback.
While some companies may stop or reduce operations to save money, this will allow sustainable miners to extend their footprint by acquiring the properties and machinery of competing businesses.
The banking institution NYDIG, which focuses on Bitcoin, and Greenidge reached an agreement to restructure $74 million in debt on December 20.
As per the conditions of the NYDIG deal, a mining capacity of 2.8 exahashes per second (EH/s) or more would be obtained. The mining company would receive a debt reduction worth between $57M and $68M in exchange.
