Will Bitcoin Mining Companies Survive In 2023?
Bitcoin mining companies had a really tough year as the extreme market conditions influenced the price of Bitcoin. The crypto market saw major crashes like collapse of Terra Sisters, Implosion of the Three Arrow Hedge Fund and the FTX fiasco. The rising interest rates form the FED to control inflation led to outflow of investors.
The price of Bitcoin dropped to its lowest since November 2021 when it was at its peak. Thus, in return the profit from mining decreased for the miners. 2023 is also not going to be an easy year as the IMF expects one-third of the global economy to be in recession.
In the past year major mining companies like Core Scientific traded down by 99% whereas Bitfarms by 91%. Riot Blockchain witnessed 85% downfall.
Bitcoin Mining: The problem being faced in mining till now
Some miners, mine Bitcoins, sell it in the market and in exchange get money. They use this money to pay for the operation and expenses of their firm.
Also read: US Federal Watchdogs Issue Joint Warning on Crypto Activities
Whereas, some of the bitcoin miners do keep the mined Bitcoin to sell it at the time when the price of Bitcoin jumps up highly. In simple words, the Bitcoin mining company mines Bitcoin, doesn’t sell the Bitcoin in the market. Instead, they take money from the debt or equity markets and pay for the expenses of running the mining company. The expenses of any mining company is majorly the price of electricity required to run the huge machines that mine Bitcoins.
Also Read: Who Accepts Bitcoin as a Payment?
Because bitcoin was becoming more expensive, a large number of people were trying to invest in it in order to avoid missing out. Due to the low cost of capital, there were many people looking to invest in Bitcoin in order to increase their yield. And throughout the past few years, these things have held true. The fact that bitcoin mining companies, who are in the business of mining bitcoin, weren’t clearly making money from mining bitcoin instead, they were profiting from the bitcoin mining industry.
However the price fell drastically in 2022. This idea of holding bitcoins can be extremely harmful when the price of bitcoin is falling, the cost of funding is rising, and bitcoin mining is becoming more competitive.
All of those events took place in 2022, thus enter the news of Core Scientific’s bankruptcy, Argo’s capital injection and extensive restructuring, as well as the CEO of Bitfarms’ resignation.
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The future in Bitcoin mining
Investors in the public markets place value on both a cash flow’s predictability and its potential for appreciation. The latter is abundant in public mining companies, but the former is badly lacking. Treasury management strategies that are effective should foresee and address the unequal profitability brought on by the markets that control the mining sector.
This tactic would make it easier for a mining company to manage market stress but would prevent it from hoarding as much bitcoin as possible to sell at a premium during a bull market. Furthermore, miners are in the mining industry, not the business of timing markets.
The mining companies doesn’t see the current price of bitcoin or the current electricity cost. It keeps on functioning for days and thus, holding all bitcoins might not always land them up in a gratifying situation.
The companies and the miners need to consider the situation of 2022, if they survive the storm that the market is facing right now. A change in the policies of holding bitcoins might be of great help in future to avoid unpredictable situations.
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