Bitcoin Miners Struggle with Funding Operations

As bitcoin prices continue to plummet, public bitcoin miners have been forced to sell their mined bitcoins to fund their daily operations. Hut 8 Mining, the last publicly listed bitcoin miner to pursue a 100% “HODL” strategy since the bull market, recently sold 188 bitcoins in February to fund its operations.

Difficulty Raising Funds for Operations

Miners have found it increasingly difficult to raise funds for operations, including in the form of capital in public markets. This is due to a slide in the broader financial market and narrowing margins. Some miners have opted to hold onto their mined bitcoin through the last bull market and into this bear cycle. However, they are now starting to sell the coins to pay for their daily operating expenses.

The trend of holding onto a reserve of bitcoin that miners produce can be very expensive. Therefore, companies have to sell what they mined to fund operations and growth, especially as other types of financing become less available.

Selling Reserves to Fund Operations

Hut 8 CEO Jaime Leverton previously stated that the company would sell bitcoin to complete a merger with U.S. Bitcoin Corp. Meanwhile, Marathon Digital Holdings sold bitcoin for the first time in January. Marathon still held 11,392 bitcoin in reserve as of the end of February.

Analyst Chris Brendler from D.A. Davidson stated that it was only a matter of time before these companies needed to be more careful with their cash on hand, given rising interest rates and other obstacles. Holding onto mined bitcoin can result in “tremendous dilution” for shareholders while the price of bitcoin and mining stocks drop.

Bankruptcies and Debt Restructurings

During the bear market, holding bitcoin resulted in the bankruptcies of some large-scale miners, including Compute North and Core Scientific. The prolonged bear market also resulted in debt restructurings by some other miners to keep their operations going. These events contributed to the decision to sell bitcoin reserves.

Timing is Crucial

Timing the sale of bitcoin is crucial for miners to maximize the benefits. Even though the writing was on the wall for miners selling off their holdings, Core Scientific started offloading its massive bitcoin holdings in June 2022, when the price of bitcoin started dropping from around $40,000. According to TheMinerMag’s Wolfie Zhao, the miner could have earned $144 million more if it had started selling in January.

Impairment Implications

Greenidge’s treasurer, Tim Rainey, expects miners to report large non-cash impairment losses for both digital asset holdings and other mining-related assets, including miners and infrastructure in upcoming earnings reports. Riot Platforms reported $147.4 million in non-cash impairments in cryptocurrencies for 2022, compared with $36.5 million the year before. Similarly, Hut 8 took a $113.9 million loss on mining equipment during 2022. The price of mining rigs roughly follows crypto prices.

Source: CoinDesk