When to expect profitability growth? The main challenges for Bitcoin miners in 2023
The market situation poses a challenge for miners of the first cryptocurrency in history. What specific difficulties will they have to face in 2023 and who has a chance of making good profits? While Bitcoin miners, unlike miners of many alternative cryptocurrencies, are characterized by optimistic forecasts regarding the first cryptocurrency (which is confirmed by the long-term growth of indicators of the total utilization of computing capacities in the network), in 2022 they all encountered a number of serious obstacles. The “growth at all costs” strategy, which is possible only thanks to the constant investment of capital, especially when purchasing new mining equipment BTC, was used by many enthusiasts in 2021 and 2022, but led to a series of failures and bankruptcies during the ongoing crypto-winter. In 2023, small positive changes are observed in the profitability of miners in terms of hash price: in recent months, the price growth dynamics BTC higher than the growth of the overall hash rate. However, the hash price index itself decreased in annual terms:
However, the market situation is still unclear. Experts predict that if the Bitcoin price significantly increases in 2023, investors will start pouring money into mining companies. This will increase the total hashing power and the return on hash price will gradually decrease. Miners are interested in how likely the Bitcoin price is to increase and how much time will be needed for investments that would return the hash price to equilibrium (so that it is neither overbought nor undervalued). Market experts say that long-term investors are only interested in those miners that generate profit at the current “equilibrium hash price”. While the hash price has stabilized in the range of 6 to 8 cents per terahash per day, many miners are still generating insufficient profit and do not even cover their costs.
In the current environment, many lenders are revising existing agreements with mining companies and negotiating terms less favorable to miners, as was the case with Greenidge Generation. Their motivation is quite simple - refusing to collect debts now is often better than bankrupting a company that could be extremely profitable in the future. The strategy of manufacturers is also worth mentioning ASIC in the current situation on the cryptocurrency market: if the final product cannot be sold immediately, they shift their computing capacity to “self-mining”, assuming that the costs will pay off in the future. Indicators on exchanges confirm all of the above data. Many public miners are currently trading 90% below their peak values, and this trade is valued very low. Which is indirectly confirmed by the decline in prices ASIC device. During the year, prices have decreased more than five times:
However, cryptocurrency company stocks remain highly volatile and highly correlated with price BTC. In such difficult conditions, many have begun to speak of the cryptocurrency industry as a “non-investment industry” (in which no one wants to invest money). However, experts note that such an approach does not take into account all the specifics of the business associated with cryptocurrency mining. To better understand the situation, they propose to distinguish different business models within this industry. On the one hand, we have miners who have the appropriate energy resources and have the rights to them, as well as to produce energy (they have access to the necessary resources). We do not yet consider these players to be the most significant market participants, since their monetization model involves mining less frequently. On the other hand, if Bitcoin were to become increasingly widespread and gain regulatory support, we can expect the arrival of large energy players in the mining industry, which would have a significant impact on the hashrate.
There are several types of miners in the cryptocurrency market. Some have their own infrastructure including equipment, funds and experts, but are unable to generate electricity. This means that their risks are higher than those of the competition and they may struggle to achieve the minimum necessary profit for their investors. These entities are very dependent on the location of their facilities, the conclusion of contracts with energy companies and the negotiation of terms with creditors. It is very likely that many of them will end up with a meager profit, even with a short-term increase in the value of the cryptocurrency.
Other players in the market are those who specialize in “mining” hard-to-find energy sources. These miners are very interesting for long-term investors and are usually startups or early-stage companies. They can monetize non-standard energy sources, such as methane from waste, or enter into contracts with renewable energy suppliers for future use. Their main risks are limited energy supply and problems with expanding the business.
If there is a supplier on the market of cheap energy obtained from recycling, it can be beneficial for miners to work with them on a regular basis and for investors to invest in a stable business.
Experts predict that along with the growing popularity of the field, we can expect a significant increase in cases where Bitcoin mining will be integrated into the chain of associated industries. These are companies that consume large amounts of energy and where it is possible to monetize the heat obtained from mining for other purposes. Or to monetize energy that would otherwise be wasted.
For these companies, Bitcoin mining can be a great opportunity to use energy efficiently and reduce energy costs, which can lead to greater competitiveness and profitability. In addition, the use of heat produced during mining can reduce heating costs and improve overall energy efficiency.
Supporting the development of these new uses of energy can have a positive impact on the environment and contribute to sustainability. It is important to take advantage of this opportunity for innovation and collaboration across sectors.
We can note that the current level of energy consumption approximately corresponds to the comparable indicators of 2021 and 2022. In general, miners are increasingly inclined to focus on cheap alternative or so-called secondary electricity to minimize costs, which is especially important during the bear cycle. Also, the low growth in the level of energy consumption is related to the use of more energy-efficient equipment.
For miners, who already have access to various energy sources and suitable computing power, the time for possible growth is coming, according to experts. Of course, this will require capital, so in certain cases a small loan amount is permissible. Miners will look for terms with the longest maturity and the most favorable interest rate. Lenders, in turn, are looking for maximum collateral, because in terms of cryptocurrency, if the miner does not bring in cash flows, the lenders are interested in replacing the losses with another form of property. Overall: in 2023, miners will face new requirements from lenders regarding the financial security of businesses. In some ways, this is reminiscent of the practice of public confirmation of collateral by centralized crypto exchanges following the collapse of FTX and the bankruptcy of a number of other major players. This material and the information therein is not an individual or other investment recommendation. The opinion of the editors may differ from the opinions of the author, analytical portals and experts.
source: bits.media
