The miners face great difficulties – The idea of mining currency that still seemed absurd a few years ago has become a serious matter. Gone are the days of little computer geniuses tinkering around in their bedrooms now to listed industrialists. And this sector, which showed insolent health in 2021, has just experienced a 2022 that was complicated in all respects. Worsened macroeconomic situation, low price of bitcoin, global energy crisis e bear market on cryptocurrencies, don’t throw it away, the cup is full! As a new financial year approaches, the industry trusts in the difficulties inherent in its business and looks to the future with a measured mix of hopes and fears. The black mouths of Bitcoin bear witness to this.
A young economy that must learn from this year 2022
A business model to review
To kick off this roundup of the year’s numbers, we give the floor to Juri Bulovic, head of mining at Foundry Digital. For him, the industry as a whole has reacted too deterministically to think so Bitcoin would go to $100,000 well before falling back to 20000. And this, in view of the bull run the previous ones. Unfortunately, this has not happened and the sector of extraction he soon found himself strangled.
Because the economic model of the sector has shown its limits in many cases. In fact, Wolfie Zhao, head of BlocksBridge’s research arm, explains to us that miners have only three sources of funding: sell bitcoins, loans or sale of shares. Faced with serious cash flow problems, many companies have been borrowing money, a lot.
Cryptocurrency miners should draw inspiration from other industries
And in the face of falling prices, the most indebted were forced to file for bankruptcy or restructure their debt. This was the case with Core Scientific, Greenidge Generation and Stronghold Digital Mining. So how to avoid this credit addiction? Jaran Mellerud, an analyst at Luxor Technologies, suggests the beginning of a response.
For the sector, it would be a matter of taking a cue from what the oil companies are doing, for example by making risk an economic asset. Why not sell Bitcoin futures? And therefore coverage in the event of a drop in prices. Or, have streamlined cash management by selling bitcoin more regularly as advocated by Wolfie Zhao, rather than waiting to be bloodless and sell at the worst times. So many solutions to consider for the future.
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The mining machines and the hashrate in question
Machine warfare leads to hashrate concentration
We also expect changes on the side of machine management. Zach Bradford, the CEO of CleanSpark, an American miner, understood that a global redistribution of mining machines was underway. Indeed, according to bankruptcies and financial difficulties, companies sell their operating tools which are recovered by their competitors in better financial health.
Jason Les, the CEO of Riot, another American giant in the sector, confirms that he has his own acquisition program, but that he won’t refuse a little extra if a good deal arrives! And this horizontal concentration of the means of production leads to an increase in hash rate, confirmed by Fred Thiel, CEO of Marathon Digital. Its facilities therefore expect to increase from 7 IE/s to 23 IE/s in the coming year.
Technological progress to increase profitability
But to survive and strive for ever greater profitability, producers can also count on technological progress and the overall restructuring of infrastructure. For example, host data in addition to extraction it was a popular model lately. But rising energy prices made this option vacillateas shown by the example of Compute North or Core Scientific, which was losing money on its facilities.
This is why technical progress could also help miners. New hydraulic or immersion cooling systems are certainly expensive, but Juri Bulovic foresees a reduction in costs over time and a democratization of these methods in the future. Finally, Aydin Kilic, COO of Canadian miner Hive Blockchain, continues to praise the performance of the new Intel Blockscale ASIC chip. True game changer for him, it could change the industrial landscape of the mining sector.
Energy crisis and prospects for 2023
History and geography of cryptocurrency mining
And speaking of geography, it’s important to point out some upcoming changes. While North America currently concentrates nearly 45% of the hash rate between the United States and Canada, the University of Cambridge predicts a massive exodus of minors to South America, the Middle East and Southeast Asia. The first obvious reason is the much more affordable price of energy in these regions.
But regulatory policies are also at the origin of these geostrategic changes. State of New York, but also many Canadian provinces have, for example, passed very restrictive laws against cryptocurrency miners. And as energy prices break records and public opinion suddenly turns to environmental issues, miners become the scapegoats of the current crisis. Hence their planned move.
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Mixed outlook for 2023 and beyond for cryptocurrencies
Finally, let’s face it, the industry as a whole is eagerly awaiting a rise in the price of Bitcoin. Unfortunately for Fred Thiel the price of this asset is conditioned by factors exogenous to the sector. The king of cryptocurrencies will thus remain stuck between $16,000 and $21,000 until frankly positive macroeconomic news arrives. He thinks about Fed policy, but also about the war in Ukraine.
And in the crosshairs, to make matters worse, is this famous one halve Arriving. In fact, next year, around March, the rewards for bitcoin mining will be halved. On this matter, Fred Thiel is adamant. For him, the price of Bitcoin absolutely must double by then for the industry to continue functioning. Finally, we quote the CEO of Cipher Mining, Tyler Page, who completely agrees with his colleague and who clearly sees the halve like a sword of Damocles over industry. Little reassuring for these extraction specialists.
Finally, when asked whether miners will be able to warm up in 2023, the answer is the following: it depends! First of all, the ability to rethink one’s sector over time and to optimize the energy resources necessary for one’s business. But, also and above all, many factors that they do not control such as the price of their flagship asset, the price of energy or the regulations in force in their sector of activity. All this makes Jason Les say that he prefers not to bet on a future rise in the price of Bitcoin. He wants to focus on the efforts to be made now to be profitable with the economic situation. If it survives these harsh winter conditions, Lin spring it will only be more beautiful.
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