To The Moon

We have seen the Bitcoin bear market happened in 2022, bitcoin prices have tumbled and margins have shrunk. Bitcoin network’s hashrate is hovering around all-time highs and operating costs are higher due to rise in energy prices – leaving miners in a very tight spot.

Back to 2024, where we have seen similar pattern where has hit around all-time highs in last week of 2023 and also early 2024. This could mean a falling bitcoin price means miner margins are compressing, margins have also been declining because Bitcoin’s network mining difficulty is increasing” as more miners are joining the network.

Companies that have already survived the previous down market and have enough capital and a sound business strategy will be able to survive this cycle. There are some signs of declining hashrate and we could see Bitcoin price rising, but it does not seem to be the case always.

Survival of the fittest – the old adage is playing out for crypto miners this year as a sell-off in the broader market is squeezing out some companies in the overcrowded industry.

Competition has increased a lot since 2021 as we could see many smaller miners entering the industry, but with a price decline, survival of many new miners might be hanging on these companies being able to sell themselves or merge with another peer.

If Bitcoin price keep declining over the next six months, we could probably see some M&A activity happen for those smaller miners who got into the sector during the peak period. Example: Canaan, $Bit Digital, Inc.(BTBT)$ , Bit Mining.

Bitcoin Mining Become Less Profitable

If we looked at the balance sheet of the mining stocks which came into the sectors, many of them lacked sound balance sheet, they have found themselves in a position where they made plans and commitments that assumed external capital, whether from public or private markets, would always be readily available.

But they need to understand the cost of capital, if available, just got more expensive, and some of these miners do not have sufficient capital to finish what they have started.

$HIVE DIGITAL TECHNOLOGIES LTD(HIVE)$ has highlighted this perspective that the crypto mining industry in general appears to find itself at a crossroads with a supply of very expensive ASIC chips and few places to plug them in. On top of these factors, we could find some of the newer and less capitalized miners are now in a limbo, as they are finding it hard to pay for their operations under the terms set out during the bull run.

With the slide in bitcoin prices, some of the older mining rigs, such as Bitmain’s Antminer S9s, are becoming less profitable, leading to miners shutting them down to avoid shouldering the costs. This is why I think we could be seeing several miners to look for an exit strategy by selling their business or merging with other companies.

M&A opportunities

In 2024, with the tight market brought forward by the launch of Spot Blockchain ETFs and April Bitcoin halving, larger, more established miners, such as $Bitfarms Ltd.(BITF)$ to lower their hashrate growth expectations to a level that is more manageable via cash flow they held currently. $Marathon Digital Holdings Inc(MARA)$ on the other hand remains “cautiously optimistic” about their hashrate growth outlook, having increased their mining farm capacity within their cash flow means.

With larger miners cautiously adjusting their growth outlook, the newer and smaller miners are likely to be in a tougher spot. This will probably lead to mergers fairly quickly given how long these newer entrants can actually withstand some of this market volatility in a bear market.

Companies that did not prepare for this downturn have very difficult strategic decisions to make. In terms of consolidation, there are many complexities in this industry, but I believe this might be better for the overall industry and market.

Summary

Based on how Bitcoin have moved after we saw the launch of the Spot Blockchain ETFs, we might not come out of the ‘Sell The News” rout so soon, and with Bitcoin falling and might decline further.

Smaller miners might need to relook into how they want to stay in the sector by either merging with other smaller mining companies or parked their operations with larger miners. This might help them to survive this short downturn.

Appreciate if you could share your thoughts in the comment section whether you think Bitcoin will go into Bear market like in 2022 but recover after that?

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.