Crypto bear market continues, Bitcoin mining companies are "overwhelmed" and their stock prices plummet

According to the Wall Street Journal, the continued sluggishness of the crypto market has put some listed Bitcoin mining companies in trouble, with company stocks falling sharply.

U.S.-listed crypto mining companies such as Riot Blockchain Inc. and TeraWulf Inc. have fallen 78% and 89% this year, respectively, while Toronto-listed Hut 8 Mining Corp. has fallen 79% and Bitfarms Ltd. has dropped 71%. Investors have been selling these stocks in response to falling profits and high fixed costs at cryptocurrency mining companies.

Bitcoin mining is a highly capital-intensive industry that keeps the Bitcoin network alive. Miners compete with each other, using expensive, powerful computers to process transactions, and the winners are rewarded with corresponding Bitcoins.

As of now, the price of Bitcoin has plummeted to about $20,000, down 70% from its high in November last year, making mining less profitable. According to data from research firm Glassnode, miners have earned less than $20 million a day in the past week, a significant drop from a high of about $72 million in October last year.

“Last month’s sharp market decline has made a bad situation worse,” said Christopher Brendler, an analyst at DA Davidson. “Lenders are retreating from cryptocurrencies, leaving miners with no flexibility to finance new equipment.”

Arcane Research analyst Jaran Mellerud said miners are being forced to sell some of the bitcoin they hold. According to new data from Arcane Research, public Bitcoin mining companies sold 100% of their Bitcoin production in May, compared to typically 20-40% previously. In the first four months of 2022, public Bitcoin mining companies sold 30% of their mining output, a 3-fold increase in May, and further growth is expected in June. Public Bitcoin miners account for only 20% of the network's total computing power, but their behavior often reflects the sentiment of private miners. Miners hold a total of 800,000 Bitcoins, making them one of the largest whales in the market, of which public miners hold 46,000 Bitcoins.

“If they are forced to liquidate these currently sizable market shares, this could drive the price of Bitcoin further downward,” Mellerud wrote in the report.

The sell-off across the capital markets, triggered by the reversal of central bank monetary policy, has hit risk assets particularly hard, with cryptocurrencies taking a hit. The entire cryptocurrency industry has lost about 66% since its November high, falling from $3 trillion to below $1 trillion.

On Tuesday, Bitfarms announced that it sold 3,000 bitcoins in the previous week for $62 million. The company said it still has 3,349 bitcoins in its reserves and is mining about 14 a day. Bitfarms said it plans to continue selling some bitcoins. Research firm Glassnode estimates that when the price level of bitcoin drops to $17,600, it will no longer be profitable for miners. On Saturday, bitcoin temporarily fell to $17,630.

Crypto asset manager IDEG has estimated a much higher breakeven price of $28,000, suggesting miners have been operating at a loss for several weeks. “The longer we stay below this level, the more we will see miners adopt capital preservation strategies, such as selling Bitcoin reserves or shutting down operations,” said Markus Thielen, chief investment officer at IDEG.