Public Bitcoin Mining Firms in Crisis Over $4B Collective Debt
The crypto mining sector finds itself in a mess over the massive loans owed by Bitcoin miners, which experts consider unsustainable. Amid a prolonged bear market, questions are now being asked about the financial health of the mining community, despite a recent credit relief to the sector.
The Growing Debt Concern
The Bitcoin mining company Core Scientific recently filed for bankruptcy due to its high debt level despite a relief grant of $72 million from creditors, which raised doubts about the liquidity status of most mining firms.
Reports indicate that public Bitcoin miners owe over $4 billion as liabilities, which requires an immediate restructuring to avoid further issues due to the incredibly high and unsustainable debt level.
Further reports revealed that many Bitcoin mining firms took massive loans at the peak of the 2021 bull run, which has subsequently impacted their bottom lines in the current bear period.
According to the Bitcoin mining data analytic platform, Hashrate Index, the top 10 debtors owe a combined amount of over $2.6 billion as a loan. Meanwhile, Core Scientific is the biggest debtor among others, with liabilities totaling $1.3 billion on its balance sheet at the end of September.
The mining firm has filed for Chapter 11 bankruptcy protection in Texas due to a drop in revenue and the price of BTC. Marathon, the second-largest debtor, owes $851 million in convertible liabilities.
However, Marathon avoided bankruptcy by letting debt holders convert their liabilities into stocks. Most mining companies, including the third-largest debtor, Greenidge, are undergoing restructuring to cut down the rising debt.
Moreover, the debt-to-equity ratio of public Bitcoin mining platforms reveals high risks. The Hashrate Index shows that a ratio of 2 or above is considered high and unsustainable for the industry. Some of the top players in the mining sector have a debt-to-equity ratio higher than 2.
Restructuring For Better Performance
Considering that over half of the 25 mining firms are in the red with high debts, the crypto mining sector is expected to witness restructuring with potential bankruptcy filings unless the market sees a bull rally.
In addition, some companies may be forced to fold up or cut down their operations to reduce their liabilities. This move will help solidify the industry by enabling stronger mining firms to expand their activities by buying out their rivals’ equipment and infrastructure.
A few days ago, Greenidge penned a $74 million debt restructuring deal with NYDIG, a Bitcoin-based fintech platform. The NYDIG partnership would see the purchase of miners with a hash rate of 2.8 exahashes per second.
In addition, part of the agreement would see Greenidge’s debt cut from $57 million to $68 million. Meanwhile, the current bear market and the FTX debacle have worsened most crypto mining companies’ already battered debt profiles.
Even though BTC’s price rose briefly, the price of the leading crypto assets is not enough to trigger another bull trend. The latest incident may hinder BTC’s price from fully recovering before the start of next year.
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