FTX Fallout slams Bitcoin miners, more bankruptcies to come
With Bitcoin’s price down 20% since news of FTX’s financial troubles began circulating on Nov. 6, Bitcoin miners are now earning less revenue than ever before.
This hit to bitcoin price squeezes margins as conditions deteriorate for miners in a year marked by the crypto bear market and rising energy costs, and it has the potential to drive companies that have so far survived bankruptcy.
Broader Context: FTX Fiasco Shakes Every Corner of the Cryptosphere
When news of FTX’s demise broke, the ensuing bank run on the exchange’s accounts precipitated a market crash. Bitcoin hit $15,500 and the broader crypto market crashed with it. A multitude of projects and companies had direct exposure to FTX and its sister company Alameda, either by holding funds on the stock exchange, investing in the companies or lending them money. Notable blue-chip crypto companies with money tied up in Sam Bankman-Fried’s founding empire to understand Galaxy Digital, Coinbase, Coinshares and Genesis Trading.
But Bitcoin miners have been reeling from the ripple effects of the FTX situation. The market sell-off weighed on mining stocks, even factoring in a slight rally after bitcoin recovered from last week’s low of $15,500 to the current range of $16,500.
In addition, hash price— a measure of the revenue potential of a unit of bitcoin mining computing power — hit an all-time high last week.
The following chart shows the hash price of bitcoin in dollars per terahash (TH) per day (a high-end machine like the S19j Pro produces 100 TH per second).
At current hash price levels, a miner using an industry-standard machine like the Antminer S19j Pro earns just $6 in revenue per day per machine, compared to $36 per day in revenue at the same time l ‘last year.
Outlook and Implications: Bitcoin Mining Margins Crushed in Recent Market Rout
With the hashprice hitting new lows, bitcoin mining margins for many mainstream players have all but evaporated.
At current levels, miners with hosting and/or electricity contracts for 8 cents/kWh that use the industry standard S19j Pro bitcoin mining machines are actually in equilibrium. Miners with power rating above this level are underwater.
The table below shows the break-even hash price levels for different Bitcoin mining machines under different power rates. It is color-coded: green indicates profitability, yellow marginal profitability, orange break-even point, and red non-profitability.
Most public miners replaced their older machines (like the S17) this year with newer gear like the S19j Pro. Some, including Marathon, Riot and Bitfarmsbegan to deploy the S19 XP, the most powerful and efficient miner to date; Yet, this model represents only a fraction of the deployed capacity of these miners.
Even at energy costs of 5-6 cents/kWh, miners using the S19j Pro are sweating the current market environment.
Decision Points: FTX Contagion Could Drive More Bitcoin Miner Bankruptcies
Bitcoin mining margins are completely squeezed and capital is getting harder and harder to come by. For publicly traded bitcoin miners, the current environment puts them in situations ranging from difficult to potentially dire.
Even before Bitcoin’s latest price drop, some of these miners were showing signs of struggling. Core Scientific, for example, hinted at possible bankruptcy in an SEC filing in October. Core’s stock has fallen 98% since it began trading in April last year.
Other miners are scrambling to restructure their debt, such as Stronghold Digital Mining, which returned 26,200 bitcoin mining machines to lender NYDIG to cancel $67.4 million in debt.
As third quarter earnings reports continue to pour in, we will have a better idea of which miners are best positioned to weather the current market conditions. Those with strong balance sheets and low debt, such as Hut 8 and Riot, will be able to meet its debts and remain liquid. As we have seen with Basic scientisthigh-leverage miners could find themselves in hot water if the price of Bitcoin remains depressed or declines.
Mining stocks have been pummeled this year, but that doesn’t mean they can’t go down.