Bitcoin’s price gains this year bring much-needed relief to the cash-strapped cryptomining industry
The recovery in Bitcoin prices since the beginning of the year has given breathing room to the companies mining the world’s largest cryptocurrency after 2022, prompting many to warn of cash shortages or even Core Scientific, one of the largest publicly traded miners. , to file for Chapter 11 bankruptcy.
Miners drove the boom in 2021 as Bitcoin rose to all-time highs of more than US$68,000 in November of that year, with Core Scientific listing shares on the Nasdaq exchange just two months later.
But the euphoria went up in smoke in 2022 when Bitcoin prices took a nosedive, the US$40 billion Terra-Luna stablecoin collapsed in May and Bahamas-based crypto exchange FTX failed in November amid allegations of fraud. Bitcoin plunged more than 75% from its all-time high to around $16,000 by the end of 2022, squeezing profit margins at mining companies.
Bitcoin has since started this year with price increases to top $25,000 in February for the first time since June 2022.
“With Bitcoin close to $24,000, it’s obviously much better and a larger share of the industry is now profitable,” Daniel Roberts, co-founder and CEO of Nasdaq-listed Iris Energy, said in an interview with Discard. Roberts said at US$25,000 per Bitcoin, Iris could make US$100 million a year in gross profit.
The change in fortunes is reflected in the share price of Iris, which traded at $2.82 as of last Friday from a record low of $1.02 in late December.
The Bitcoin network is secured by network participants trying to crack complex cryptographic equations required to validate transactions on the network. This process requires enormous computing power and energy use, and these validators or “miners” are usually rewarded in Bitcoin.
Iris was just one of many Bitcoin mining operators to report cash shortages at the end of last year, as did London-listed miner Argo Blockchain and Greenidge Generation Holdings. But Iris appears to have addressed the shortcoming, according to the company’s recent earnings report.
Hard times
Bitcoin’s mining difficulty, a variable that measures how much computing power is required to verify blocks on the blockchain, rose to an all-time high on February 25. This has offset the profitability of the miners, even as Bitcoin increased.
Another Bitcoin miner said it was not just the crash in Bitcoin prices that hit the industry last year, but a number of factors, including mining difficulties and energy prices.
Bitcoin’s price crash was compounded by mining difficulties going “through the roof” and volatility in energy prices as global inflation rose, Tim Broadfoot, CEO of Australian cryptocurrency miner Mawson Infrastructure Group, said in an interview.
“So it’s been difficult,” he said. Broadfoot added that the rise in the price of Bitcoin in late 2021 led to a rush in orders for the specialized computers adapted to crypto mining. These machines are now coming online but need to be run to be profitable.
Energy prices also took a toll on the Bitcoin mining industry, after Russia’s invasion of Ukraine caused household energy prices around the world to nearly double, according to a recent report from the World Economic Forum.
Sticky Bitcoin
Both Mawson and Iris have been somewhat insulated from the rise in energy costs, as both rely mainly on renewable energy sources that have been less affected by volatility in the prices of electricity generated from fossil fuels such as oil and gas.
Iris uses excess renewable energy to run its mining operations, which the company believes could provide a market incentive to build additional renewable energy facilities based on wind, solar and others.
“[Iris’s] the strategy has always been to target excess renewable energy, which is almost by definition the lowest energy cost you can get, Roberts said. “So we’ve stayed very competitive and increasingly competitive in the global cost curve.”
Mawson is operated by a nuclear power plant in Pennsylvania, USA, and also operates as an energy retailer. Broadfoot said throughout December, Mawson made $4 million in the energy market, but mined very few Bitcoins.
“So that has really helped the company over the last few months and will continue to be part of our strategic process,” he said.
Roberts said that the decline in crypto prices and failures of various trading platforms ultimately help Bitcoin by distinguishing it as a monetary alternative.
“People are now starting to learn that Bitcoin is different from crypto and Bitcoin is different from these centralized exchanges,” he said.
“I think continued interest from individuals, high-net-worth family offices and institutions is a bit more sticky and stays through the cycle rather than potentially going down for a couple of years during previous bear markets.”
