Hedge funds see bitcoin miners ‘going bust’ as crypto winter continues

Bitcoin miners enjoyed a bumper 2021 amid a historic bull market but with crypto suffering one of its worst-ever corrections this year, some publicly-listed miners are on the verge of being wiped out, according to hedge funds.

Crypto miner Argo Blockchain’s stock has lost nearly 96% of its value in 2022 to date. Nasdaq and Toronto Stock Exchange-listed Hut 8 Mining’s share price plunged by around 88%. Canada-based HIVE Blockchain Technologies is down by 86%.

But there’s a warning about the wider demise of the sector from Marc P Bernegger, co-founder of crypto hedge fund AltAlpha Digital: “Some of the heavily debt-financed players in the crypto mining industry will get wiped out of the market soon.”

Hedge funds see miners’ heavy reliance on debt-funded operational infrastructure as one of the major reasons behind their historic stock plunges this year as falling coin prices hit crypto mining firms.

“As the profitability of mining is at its all-time lows, mining companies are struggling not only to fund their operations, but also to service their loans, facing potential bankruptcies,” Marcin Milosierny, head of market research at crypto hedge fund ARK36, told Financial News.

“Some mining companies will inevitably go bust during this crypto winter. Miners took substantial loans last year to buy new mining rigs at or near the peak of the bull run. The loans were collateralised by the value of the rigs, which has now dropped considerably,” Milosierny added.

Crypto mining uses significant amounts of electricity to run computing that generates new coins and verifies transactions by solving complex maths problems, but the soaring energy prices also have a significant impact on mining costs. Amid a volatile economic and political climate that has pushed prices higher, miners are now looking for external funding to survive the crypto winter, a strategy that proved too little too late for some.

Jason Deane, bitcoin analyst at Quantum Economics, said: “The issue is that the majority of the big miners were financed and built in the bull market – that means very high capital prices, high gearing and, in some cases, less advantageous power prices. This doesn’t matter in a bull market, but in a bear market it’s extremely problematic.”

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Core Scientific, a crypto mining company that went public in 2021, battled plunging stock prices and declining revenues throughout 2022. The firm was offered a $72m rescue deal on 14 December to avoid potential bankruptcy.

The Texas-based mining firm then filed for Chapter 11 bankruptcy protection on 21 December.

The US-based bitcoin mining firm Greenidge Generation Holdings was in talks to restructure over $70m in debt while making plans for a potential bankruptcy filing, The Wall Street Journalreported.

Still, amid the challenges, there may be bright spots for more established firms.

“The mining industry as a whole will most certainly survive. Though smaller mining companies are getting forced out of the market, bigger players — with newer and more efficient mining rigs — have a greater chance of surviving,” Milosierny said.

To contact the author of this story with feedback or news, email Bilal Jafar

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