Crashing prices reveal Bitcoin mining the addiction to the industry for leverage

Crashing prices reveal Bitcoin mining the addiction to the industry for leverage

swaths of Bitcoin miners are faced with a possible liquidation after they have taken up high-interest loans to finance their expenditure habits on the bull market instead of selling their bitcoins-according to which industry participants could trigger a cascade of crypto creditors and hedge-fund companies whose engagement is broke.

Bitcoin miner rely on three profitability dynamics: the Bitcoin Prize (BTC), electricity prices and access to powerful special mining rigs, which are known as ASICs (application-specific integrated circuits).

All three are now burdening miners - plus their creditors and other counterparties.

BTC fell by around 30 % last month - from $ 31,000 to less than $ 21,000. It is predicted that electricity prices in summer in the northeast of the United States, where many miners live, will double from year to year.

Instead of selling their mined bitcoins, US companies usually took out loans to fairly high interest rates, and Blockworks found out when Bitcoin's price was twice as high as it is today.

estimates, almost 40 % of the total Bitcoin mining takes place in the United States. Crypto loans such as Blockfi, Nydig and China's Babel Finance contributed to facilitating the growth of the ASIC stocks. The operation worked - before the collapse of StableCoin VAT and the bankruptcy of the lender for digital assets Celsius.

While the energy costs are worrying, Bitcoin's price is the main pain source for miners - especially for those with great leverage.

"The mood is really bad," said Todd Esse, co-founder of the mining hedge fund company Hashworks. "At this price, the winning spans are very low, especially in summer when electricity prices are increasing in Texas and PJM [Pennsylvania, New Jersey and Maryland]."

Before the latest broad -laid market descent, miners found creative loopholes to store deposits - between 30 % and 50 % - to manufacturers in order to obtain a new batch of machines, and prompted the remaining amount with funds from not yet reduced companies.

The operators even borrowed cash to cover the overhead costs by using their Asics as security - in the belief that the price of Bitcoin would continue to rise, which enabled them to reduce profitably. A number of lenders, including the recently under water, have drawn such loans, which leads to the risk that the lender gets stuck with bulky, illiquid machines that lose money without electricity. And not to mention companies that voluntarily switch off their facilities - some cannot reach the profit threshold if electricity prices rise.

Some will try to deposit their entire ASIC supply to secondary sleeves that are already flooded with used systems of Chinese miners, says mining consultant Alejandro de la Torre, who said that "there will be chaos out there".

In fact, Hashworks recently first-class Bitmain S19j ProS were offered for $ 4,400-astonishing 65 % below the retail price.

"The market is currently looking for an offer," said Esse.

Lendingers could take possession of Bitcoin mining workers again to make themselves healthy

Regardless of where an operator has brought his facilities up and running, it is impossible for an outstanding credit line to “get into”, according to Jurica Bulovic, "to achieve enough income through the mining to meet these credit obligations". , Head of Mining at Foundry Digital, which grants crypto-miners loans and operates crypto staking.

Credit cases - which are already associated with a relatively high interest rate of around 11 % per year - are expected to be heavily burdened with large balance sheets.

Most miners will probably not be in arrears soon, Bulovic told Blockworks. Some have built balance sheets and other income to at least pay the interest.

But when the current economic situation continues, miners who bought and sold BTC over time will start tapping cash reserves.

if you have cash reserves.

"Of course nobody wants to sell Bitcoin, especially at these low prices, but they have to do it to avoid a loss of payment of their loans," said Bulovic.

if possible, structured Foundry his loan between three parties-themselves, miners and the hosting facilities for rigs.

If the miner gets in default, Foundry would take over and reduce the company until it makes itself completely. But not all lenders have these expertise.

The last way out is to take possession of boring islands again and try to sell them.

"This is a challenge for all lenders because the markets are not very liquid," said Bulovic. "It is much easier to sell Bitcoin than an ASIC. I think some lenders in the industry that came from traditional lending or lending against Bitcoin will now see that the collateral you hold are not as liquid or as valuable as you thought."

The Bitcoin Hashrates are expected to continue to fall further

Evidence of pain can already be found in the Hashrate of Bitcoin, which measures the processing performance in the network. The Hashrate fell by about 17 % last week, and Bitcoin itself fell by more than 20 %.

Both eating and de la Torre assume that the hash rate will drop significantly, although the Bitcoin network can withstand a considerable decline in the hash rate and can remain safe.

The collapse of crypto has disclosed an immense risk of leverage in Bitcoin mining.

"If Miner were not pried up, they would either run mining or not, and they would not have to serve debts," said Esse. "This business is like any other raw material business: how much do you want to leverage in oil? You should work within the cash flow."

The idea of ​​"free money" has disappeared in the mining, said de la Torre, for those who have not considered a possible drop in prices.

"And maybe it was a stupid move to finance ASIC machines with $ 13,000-and now they are paying for this stupidity," he said.

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The article Remove crashing prices Bitcoin Mining Industry’s Addiction to Leverage is not a financial advice.