Bitcoin Risks Major Selloff As Miner Problems Continue

Between sunken BTC prices, the falling value of mining rigs, rising electricity costs and a rising hashrate, Bitcoin mining operations are facing tough market conditions.

Tough Times for Bitcoin Miners

Bitcoin miners are struggling to keep their heads above water.

Bitcoin mining company Argo Blockchain presented in a statement Bloomberg Today that it could close soon as it risks becoming “cash flow negative” in the near 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, drop 52.28% daily; it is currently trading for $0.94 – down 95.48% from its all-time high of $20.95 in November 2021.

Argo Blockchain is not the only miner in trouble. Last week, Core Scientific shared a similar statement, say it ran into liquidity problems and that it could go bankrupt. Among other things, the company said it would have to halt all of its debt financing payments. Core Scientific was the third largest publicly traded Bitcoin mining company in July. The market capitalization at the time was standing at about $525 million; however, as of today, that figure has shrunk to $70 million.

It’s been a tough year for Bitcoin miners. BTC is 70% down in 2022, meaning mining operations have experienced a serious reduction in their main source of income. The drastic loss of income was exacerbated by increased expenditure due to rising energy costs. Mining rigs, especially ASICS, have also seen a price drop (by 70% or 80%, according to Investigation of reflexivity), further hindering Bitcoin miners from raising capital for their assets. In addition, the Bitcoin hashrate, which measures the amount of computing power miners need to produce blocks, keeps to beat new highs, meaning mining has never been more competitive than it is today.

How Bitcoin Can Be Affected

Large mining operations 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 about $8,000 and $6,000, BTC finally crashed, dropping 50% to about $3,000, due to miner capitulation. Some Bitcoin analysts have warned that a similar sell-off could happen this time around as the main cryptocurrency struggles for several months between $18,000 and $24,000 as the hashrate continues to climb. That means mining is becoming increasingly unprofitable.

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

Anyway, Bitcoin magazine PRO analysts claim Government-owned Bitcoin mining companies still hold over 34,040 BTC worth about $694 million, and that these operations only account for about 20% of Bitcoin’s hashrate. Dates 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 hold a combined 27,802 BTC (worth about $567 million). If the numbers are correct, these mining operations could create significant sales pressure if they experience similar issues to Core Scientific or Argo Blockchain.

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