3 - 6 minute read
The recent bankruptcy filing of Bitcoin mining company Core Scientific, despite a $72 million relief offer from creditors, has raised concerns about the financial health of the larger Bitcoin mining community amid a prolonged bear market. According to data analytics firm Hashrate Index, public Bitcoin mining companies owe more than $4 billion in liabilities and are in need of immediate restructuring in order to address their unsustainable levels of debt.
The top 10 debtors among public Bitcoin mining companies owe a cumulative total of over $2.6 billion. Core Scientific, the largest debtor, had $1.3 billion in liabilities on its balance sheet as of September 30th and recently filed for Chapter 11 bankruptcy protection in Texas due to falling BTC prices and revenue. Marathon, the second largest debtor, has $851 million in primarily convertible note liabilities, which it has sought to avoid bankruptcy by allowing debt holders to convert the notes to stocks.
Many other public Bitcoin mining companies, including the third largest debtor Greenidge, are currently undergoing a restructuring process in an effort to reduce debt. The overall debt-to-equity ratio of public Bitcoin mining companies reveals high levels of risk, with a ratio of 2 or higher considered risky in most industries. Hashrate Index data shows that more than half of the 25 public Bitcoin mining companies have extremely high debt-to-equity ratios, indicating a potential for restructurings and bankruptcy filings unless the market improves.
The current cost of #mining one #Bitcoin is higher than the market price of one Bitcoin.— Eloisa Marchesoni (@eloisamarcheson) December 23, 2022
> The trend of mining becoming more concentrated in countries with cheap energy could be a potential concern for #decentralization in the industry.#bitcoinmining pic.twitter.com/dpW95k3zUN
Restructuring and Consolidation in the Industry
Some companies may be forced to shut down or slow operations in order to reduce their liabilities, while others may be able to expand their operations by purchasing the equipment and facilities of struggling competitors. On December 20th, Greenidge signed a $74 million debt restructuring agreement with fintech firm NYDIG, which will see the purchase of miners with approximately 2.8 exahashes per second of mining capacity in exchange for a debt reduction of $57 million to $68 million.
The high levels of debt in the public Bitcoin mining industry highlight the risks and challenges faced by these companies. While the Bitcoin market has experienced highs and lows in the past, the current bear market and high debt levels could potentially lead to further consolidation in the industry as companies struggle to stay afloat.