Bitcoin miners have been in a bind for a while now. When the price of the digital asset dropped, it inadvertently affected the cash flow and profits made from mining activities. Hence a lot of miners have had to sell off their BTC holdings to make ends meet. Public miners have not been left out of this. With payments becoming due and the miners pulling in less money due to market prices, public miners are slowly but surely headed for a liquidity squeeze.
No Money To Pay
A lot of public miners had made large amounts of profits in 2021 when the price of bitcoin had been in a continuous bull market. Expectedly, promises had been made with the current market conditions at that point in mind. But the market has had other plans as price crashes have all but wiped away the expectations for these public miners.
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With the ramp-up of adoption and activity on the bitcoin network, miners had invested in getting more machines following their commitments to increasing their BTC production. Like with a lot of companies, a good portion of these machines had been gotten on credit with payments to be made. As the price of the digital asset continues to struggle, forecasts are that a good portion of the public bitcoin miners would have a hard time making these payments.
These large expansion plans which were made during the bull market are now needing to be executed in a bear market. Some of the public miners had made machine orders that went into the hundreds of millions of dollars. Examples of these public miners with large machine orders include Marathon, Riot, Core, and Hut 8, among others. Marathon alone has $260 million in machine payments for 2022, as they plan to increase their hashrate by more than 600%.
Miner machine payments coming due | Source: Arcane Research
Need Bitcoin To Pay?
For a lot of public bitcoin mining companies, they remain on the hook for the orders that they made during the bull market. This means that regardless of whether the price of bitcoin is up or down, they have to come up with a way to pay off these machines. There are a number of ways that they could do this.
Short of selling all of the bitcoins they hold on their balance sheet, which would effectively tank the companies, public mining companies can get the debt to pay for these machines. However, due to the short time frame, these debts would have to be higher interest debts.
BTC price falls loses $1,000 in 24 hours | Source: BTCUSD on TradingView.com
Another way would be to raise equity at a lower valuation given the state of the crypto market. Something companies are reluctant to do. Additionally, they could decide to sell the already-ordered machines to competitors with more cash flow.
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Last but not least would be for the companies to default on the orders which have already been made, which is more likely in these scenarios. This would push more bitcoin mining machines into the open market, which would, in turn, lead to lower prices for these machines.
Featured image from Analytics Insight, charts from Arcane Research and TradingView.com
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