Bitcoin Risks a Major Selloff as Miner Troubles Continue

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Due to falling BTC prices, declining value of mining rigs, rising electricity costs and a rising hashrate, Bitcoin mining operations are facing difficult market conditions.

Tough times for Bitcoin miners

Bitcoin miners are struggling to stay afloat.

Bitcoin mining company Argo Blockchain proposed in a statement Bloomberg Today that it could close soon as it risks becoming ‘negative cash flow’ in the short term. Argo attempted to raise money through a $27 million share sale, which reportedly fell through, and has resorted to selling 4,000 mining rigs for $5.6 million to buy itself time. The announcement saw Argo’s stock, ARBK, fall 52.28% from its daily price; it is currently trading for $0.94 – down 95.48% from the all-time high of $20.95 in November 2021.

Argo Blockchain isn’t the only miner facing problems. Last week, Core Scientific shared a similar statement, say it suffered from liquidity problems and could go bankrupt. Among other things, the company said it would have to cancel all its debt financing payments. Core Scientific was the third-largest publicly traded Bitcoin mining company in July. The market capitalization at the time stood at approximately $525 million; however, as of today, that figure has dropped to $70 million.

It’s been a tough year for Bitcoin miners. BTC is 70% down in 2022, meaning mining operations have suffered a severe cut to their main source of revenue. The drastic loss of income is further exacerbated by higher expenses due to sharply rising energy costs. Mining rigs, especially ASICS, have also seen a price drop (by 70% or 80%, according to Reflexivity research), further preventing Bitcoin miners from raising capital with their assets. Additionally, the Bitcoin hashrate – which measures the amount of computing power miners need to produce blocks – will be retained hit new highs, meaning mining has never been as competitive as it is today.

How Bitcoin Can Be Affected

Large mining companies struggling to stay afloat is not a good sign for the market. A good scenario would be that Argo Blockchain and Core Scientific turn out to be the least efficient mining companies, leaving room for competition to replace them. However, it is possible that other mining operations are experiencing similar problems and are looking for ways to survive. One option could be to dump their BTC holdings.

In fact, this is exactly what happened in November 2018. After five months of trading between around $8,000 and $6,000, BTC finally broke down, falling 50% to around $3,000, due to the capitulation of miners. Some Bitcoin Analysts have warned that a similar sell-off could happen this time as the leading cryptocurrency has been struggling in a range of $18,000 to $24,000 for several months as the hashrate continues to rise. This means that mining is becoming increasingly unprofitable.

Argo Blockchain and Core Scientific are unlikely to pose a threat to the markets as it appears the two companies have already sold significant portions of their Bitcoin treasuries. Core Scientific announced in July that it had sold more than 7,202 BTC the previous month, bringing its holdings down to 1,959 BTC. The company now owns 24 BTC per Bloomberg.

Anyway, Bitcoin Magazine PRO analysts claim State-owned Bitcoin mining companies still own more than 34,040 BTC worth about $694 million, and these operations represent only about 20% of Bitcoin’s hashrate. Data from Bitcoin treasuries seem to support this estimate: according to the website, the three largest mining companies – Marathon Digital Holdings, Hut 8 Mining Group and Riot Blockchain – currently collectively own 27,802 BTC (worth approximately $567 million). If the numbers hold true, these mining operations could cause significant selling pressure if they face similar issues as Core Scientific or Argo Blockchain.

Disclaimer: At the time of writing, the author of this piece owned BTC, ETH, and several other crypto assets.

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