Bitcoin is in danger of collapsing by more than 50% due to the miners’ crisis!

Between the collapse of BTC prices, falling value of mining platforms, rising electricity costs and soaring hashrate, bitcoin mining operations are facing difficult market conditions.

Hard times for bitcoin miners

Bitcoin mining company Argo Blockchain suggested in a statement to Bloomberg today that it may soon shut down as it faces becoming “cash flow negative” in the near term. Argo attempted to raise funds through a reportedly unsuccessful $27 million stock sale and resorted to selling 4,000 mining rigs for $5.6 million to buy time. The announcement sent Argo’s stock, ARBK, down 52.28% on the day; it is currently trading for $0.94, down 95.48% from its all-time high of $20.95 in November 2021.

Argo Blockchain isn’t the only miner to run into trouble. Last week, Core Scientific shared a similar statement, saying it was experiencing liquidity issues and was facing bankruptcy. Among other things, the company said it would have to stop all debt financing payments. As of July, Core Scientific was the third largest publicly traded Bitcoin mining company. At the time, its market capitalization was about $525 million; as of today, that number has fallen to $70 million.

It’s been a tough year for bitcoin miners. BTC is down 70% in 2022, which means that mining operations have had to face a severe reduction in their main source of income. The drastic loss of revenue has been compounded by increased expenses due to soaring energy costs. Mining equipment, especially ASICS, has also seen a drop in price (by 70% or 80%), which prevents bitcoin miners from raising capital against their assets. In addition, bitcoin’s hashrate – which measures the amount of computing power needed by miners to produce blocks – is keeping the exchange rate from hitting new highs, meaning that mining has never been as competitive as it is today.

In last week’s report, we described how Bitcoin miners are under extreme stress.

This morning Core Scientific announced a bankruptcy warning – plunging the miner’s equity down over 75%.

Miners remain the biggest intra-Bitcoin risk to the market in our view. pic.twitter.com/Z5W7VorFlp

– Reflexivity Research (@ReflexivityRes) October 27, 2022

How bitcoin could be affected

Large mining operations struggling to stay afloat is not a good sign for the market. A good scenario would be that Argo Blockchain and Core Scientific turn out to be the least efficient mining companies, leaving room for competition to replace them. However, it is possible that other mining operations will experience similar difficulties and look for ways to survive. One option could be to divest their holdings of BTC.

In fact, that’s exactly what happened in November 2018. After five months of trading between about $8,000 and $6,000, BTC eventually cracked and plunged 50 percent to about $3,000, due to the capitulation of miners. Some bitcoin analysts have warned that a similar drop could happen this time around, as the leading crypto-currency has been struggling in the $18,000 to $24,000 range for several months, while the hash rate continues to rise. This means that mining is becoming less and less profitable.

Argo Blockchain and Core Scientific are unlikely to pose a threat to the markets, as both companies have reportedly already sold significant portions of their bitcoin treasuries. Core Scientific announced in July that it had sold over 7,202 BTC in the previous month, bringing its holdings down to 1,959 BTC. The company now holds 24 BTC, per Bloomberg.

Nevertheless, Bitcoin Magazine Analysts PRO claims that public mining companies still hold more than 34,040 BTC worth about $694 million, and that these transactions only represent about 20 percent of Bitcoin’s hashrate. Data from Bitcoin Treasuries seems to confirm this estimate: according to the website, the top three mining companies – Marathon Digital Holdings, Hut 8 Mining Group and Riot Blockchain – currently hold a total of 27,802 BTC (worth about $567 million). If the numbers are correct, these mining operations could cause significant selling pressure if they face challenges similar to Core Scientific or Argo Blockchain.