Bitcoin Miners Are Starting to Emerge From Brutal Crypto Winter

The bitcoin mining industry appears to be getting back on its feet after a long crypto winter that saw major bankruptcies and fire sales.

Even though mining economics have improved only marginally as bitcoin trades above $20,000, capital is starting to flow into the sector once again.

“This shows that investor sentiment is still largely driven by BTC price action rather than mining fundamentals,” Ethan Vera, chief operating officer at Luxor Technologies, a crypto mining-services firm, said.

Meanwhile, lower energy costs in the last few months have also given miners some breathing room.

Read more: Bitcoin Miners Surface for Air as Sliding Natural Gas Price Provides Cost Relief

Shares of publicly traded bitcoin mining firms have outpaced bitcoin this year. A composite index of public mining rig manufacturers, foundries and miners compiled by Luxor is up by 52% so far this year, compared with bitcoin’s 44% rise.

In terms of percentage growth, the biggest winner in public markets has been Core Scientific (CORZQ), which is still traded over-the-counter amid its Chapter 11 bankruptcy. The value of its equity grew 693% in 2023, according to stock information platform TradingView, but the stock is still trading at about 30 cents. It is followed by Digihost, whose shares have risen 225%. Shares of Cipher Mining (CIFR), DMG Blockchain (DMGI), Bitfarms (BITF), Iris Energy (IREN) and Bit Digital (BTBT) have all at least doubled.

Meanwhile, when it comes to realized hashrate, a metric of miners’ competitiveness on the Bitcoin network, CleanSpark (CLSK) leads the pack, with 224% growth year over year, followed by Bit Digital (BTBT), Bitfarms and Riot Platforms (RIOT) following. Hashrate is a measure of computing power used to mine new bitcoin blocks and validate transactions on the network.

The earnings season that was kicked off by CleanSpark should reveal whether the rally in miners’ stock is justified.

The fourth quarter of 2022 was and could be the worst of the market cycle, according to investment bank H.C. Wainwright analyst Kevin Dede. He expects the upcoming earnings reports to show that the quarter was a trough one, making it the last step in the business cycle before a potential recovery.

The winners

With some major players out of the game, or in Core Scientific’s case on the bench, due to bankruptcy proceedings, opportunities abound for other companies.

Several publicly traded miners that were uncertain about their cash flow in the medium term, such as Greenidge Generation (GREE), TeraWulf (WULF) and Stronghold Digital Mining (SDIG), have been able to restructure their debt obligations in 2023 so that they can stay afloat.

Read more: Core Scientific Bankruptcy Approves $70M Financing Deal From B. Riley

Smaller firms are also seeing interest from investors in 2023. Sabre56 raised $35 million to build 150 megawatts of infrastructure, and mining machine supplier Minerset is preparing to merge with BlockQuarry, which also canceled $5 million in debt and raised $1.3 million in new capital.

Luxor’s Vera sees Hut 8 (HUT) and US Bitcoin Corp., which recently merged, as well as Galaxy Digital (GLXY.CA) as “positioning themselves to capitalize on the next bull run well.” He also noted that “a series of new startups are finding unique ways to build businesses in the space such as Block Green, Giga Energy and 360 Mining.”

Elsewhere, crypto lender NYDIG has access to more than 11.6 exahash per second of machines because of various loans that miners either restructured or defaulted on. If NYDIG were to bring all of those machines online, it would be a miner the size of Marathon Digital (MARA), one of the bigget publicly traded miners. The list of NYDIG’s borrowers includes Greenidge, Iris Energy, Core Scientific and Stronghold Digital Mining.

NYDIG declined to comment.

Don’t call it a comeback

Despite the rally in publicly traded miners’ stocks, the fundamentals are far from what investors saw back in the heady days of 2021.

“While that [the gains in the price of bitcoin] certainly gives some breathing room to struggling miners, it is still too soon to confidently be calling an industry rebound,” said Juri Bulovic, head of mining at Foundry Digital. Foundry is owned by CoinDesk’s parent company, Digital Currency Group.

The bitcoin network’s hashrate has grown by one-third since the start of 2023, with the difficulty of mining a bitcoin block reaching an all-time high of one in 43.05 trillion on Feb. 24. But when the network difficulty increases, miners’ profitability falls. The profitability of mining bitcoin, measured by Luxor’s hashprice, fell back to January levels when the difficulty increased on Feb. 24.

It's possible that miners might have found some relief this year, but with high inflation and interest rates still lurking in the background, miners are not out of the woods yet. The miners now have to implement risk-aversion strategies to survive the remainder of the down market.

Neil Galloway, COO of Rebel Mining, cautions that “we have a long way to go to get back to where we were” and so “it is crucial that miners remove additional risks” and “partner with a host who is financially solvent, owns and operates the underlying infrastructure and who has the systems in place to monitor and manage things appropriately.”