What Will It Take for Bitcoin Mining Companies to Survive in 2023?

It was a perfect storm for bitcoin mining companies in 2022: Interest rate hikes increased the cost of capital, mining bitcoin became less profitable as hashrate stubbornly trudged upward while bitcoin’s price tumbled and mining companies’ treasury management strategies failed them.

The result of the tempest shows up in the stock prices of the five biggest public miners by hashrate. In 2022, Core Scientific ($CORZ), Riot Blockchain ($RIOT), Bitfarms ($BITF), Iris Energy ($IREN), and CleanSpark ($CLSK) traded down 99%, 85%, 91%, 92% and 79%, respectively.

Ouch.

No, this doesn’t mean that Bitcoin is dead or that bitcoin (BTC) is destined for $0. I have quite literally written the opposite. It doesn’t even necessarily mean that the public mining companies will disappear. What it definitely does mean is that we’re due for (and are in the midst of) a bit of restructuring and strategy rationalization that will leave the mining industry better than it was before.

What was wrong before?

For the last few years, some miners have held onto the bitcoin they mined, opting instead to finance operations with debt and other capital. This works really well when two things hold true:

The price of bitcoin is increasing, so the amount of people looking to get involved in Bitcoin for the sake of not missing out is high.

The cost of capital is cheap, so the amount of people looking to get involved in Bitcoin for the sake of yield is high.

And these two things were true for the last couple of years. So we had this really weird situation where bitcoin mining companies, who are in the business of mining bitcoin, weren’t explicitly making money by mining bitcoin. Instead, they were making money by financing the mining of bitcoin.

This is a bit of an oversimplification, but really just a bit.

In our theoretical world, a bitcoin mining business makes money like this: The business has bitcoin mining machines which mine bitcoin, and the business in turn exchanges a portion of that mined bitcoin to pay for the expenses needed to run the business.

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