Ren Garcia 
If you remember, 2022 was a very, very difficult time for Bitcoin mining companies. The main reason why this process was so challenging was undoubtedly the interest rates.
The rise in interest rates made funding much more expensive. Not only that, but the hash rate has been steadily increasing. Naturally, this made bitcoin mining much, much less profitable.
At the end of this process, of course, the bitcoin price crashed and the financial management techniques of mining companies were destroyed.
Mining experienced the worst days in its history
We have seen the effects of this decline in several places. The stock prices of five major publicly traded mining companies, as measured by their hash performance, were the first to take notice. Core Scientific (CORZ), Riot Blockchain (RIOT), Bitfarms (BITF), Iris Energy (IREN), and CleanSpark (CLSK) lost 99.9%, 85.5%, 91.1%, 92.2%, and 79.0% in 2022, respectively.
Is This The End of Bitcoin?
No, it does not mean that Bitcoin is dead or worthless. It doesn’t even mean that public miners will disappear. It is an important indication that the mining industry needs to be restructured and strategically streamlined (which is currently underway) to ensure that it remains in better shape than before.
Indeed, companies have been doing some things wrong:
In recent years, some miners have chosen to fund their operations with debt and other cash and keep the Bitcoins they mine. This is effective when two conditions are met:
As the price of bitcoin increases, the number of people willing to participate increases.
Because of the low cost of money, many people are attracted to Bitcoin’s high returns.
Moreover, these two phenomena have emerged in recent years. Thus, a truly bizarre situation has arisen in which Bitcoin mining companies engaged in the Bitcoin mining business are not making money specifically from Bitcoin mining. Instead, they have accumulated wealth by supporting bitcoin mining.
This is a simplification, but only a small simplification.
How Is BTC Revenue Accounted For?
Basically, it’s about how businesses use Bitcoin revenue: First, a Bitcoin mining company generates its revenue in the following way.
The company owns machines that mine bitcoins and trades some of the bitcoins from mining to cover operating costs.
What’s next. The same mining company can also generate revenue in the following way: The company owns the machines that mine Bitcoins and raises or borrows capital from exchanges to cover operating costs.
There are mining companies like Marathon Digital that put all the Bitcoins they have mined in the last 26 months on their balance sheet instead of selling them to fund their operations.
Of course, this doesn’t make sense for many companies. In general, regardless of the financial markets, companies should think long-term and try to make more money than it costs to make that money. Otherwise, the company should not exist.
Therefore
- When the price of bitcoin falls,
- If the cost of funding increases, and
- If bitcoin mining becomes more competitive, things could turn around and the collapse could begin,
Considering all these options together, it is imperative for bitcoin mining companies to look for alternatives and develop a sound management plan. If the wind (for Bitcoin prices) turns against them, it could be very frustrating.
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