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Fading bitcoin

Miners Hit: Cryptocurrency Slump And Energy Prices Skyrocket

Mining firms are pushed to the limit by high energy costs and stagnant coin values. The value of bitcoin (BTC) is down 56% as of the beginning of November 2022, and the majority of the large miners are trading at a discount of between 70% and 90% to their value at the start of the year. By 2022, the sector will be down by an average of 70%.

Do Bitcoin Miners Have A Future?

Due to the high cost of energy and the declining value of digital assets, more enterprises are being pushed down the financial precipice, placing enormous pressure on cryptocurrency mining operations.

Bitcoin candle chart analysis

Bitcoin candle chart analysis

Core Scientific, a Nasdaq-listed company, issued a warning last week that it would seek bankruptcy protection because its financial reserves will run out by the end of the year. This bleak picture was reinforced on Monday by the London-listed Argo Blockchain, which said it would be forced to shut down after a crucial fundraiser failed.

Only a few weeks prior, US-based Computer North, which provided data center services for miners, issued the same warnings. The company claimed bankruptcy, owing up to $500 million, and blamed difficult market conditions.

Their precarious financial positions demonstrate how crypto mining, the method used to create coins and verify transactions, may soon be affected by the recent drop in the value of well-known cryptocurrencies like bitcoin.

A number of formerly well-known cryptocurrency businesses, like the lending platform Celsius Network and the hedge fund Three Arrows Capital, have already succumbed to the collapse.

The sustainability of mining has been under scrutiny from industry analysts and executives, especially since the values of the top tokens have been fluctuating since June. After hitting a high of almost $70,000 in late 2017, Bitcoin has seldom ever risen above $21,000.

The operation of so-called “proof of work” tokens like bitcoin depends heavily on miners. In a system that avoids intermediaries like banks and exchanges, they effectively assume the function of guarantor that trades are trustworthy by validating new blocks on blockchains.

They receive fresh coins in exchange for their mining efforts. The second-largest crypto asset in the world, Ether, just abandoned a mining-dependent mechanism. 

Increased Mining Capacity

Coin prices kept growing, which attracted lots of miners. Companies spent a lot of money purchasing mining equipment, particularly powerful computers when the price of bitcoin fell in 2021. A mining business named Hut 8 increased its capacity by over a third in the first quarter of 2022 by adding 9,592 new mining machines.

As a result of more mining equipment entering the market at a time when the price has fallen, miners are competing more fiercely for the token. According to Hashrate Index, the overall hashrate of Bitcoin, the amount of processing power used for mining, has climbed by 57% in the past year to a record 260 exahash, or quintillion, operations per second. 

Spiking Energy Prices

The high cost of electricity has also surprised a lot of people and dashed the hopes of miners. To earn bitcoin, miners compete with one another by solving challenging mathematical riddles. Regardless of whether they claim Bitcoin before their rivals, they put up a lot of effort. Argo acknowledged that its Texas facility’s energy expenses were almost three times higher than the monthly average.

One bitcoin was worth $69,000 when the cryptocurrency market was at its zenith in 2021. The award was reduced to $20,000 by Q3 of 2022. The mining of bitcoins is cyclical by nature, thus the bear market was always going to be a time of scarcity.

Other smaller miners, including BIT mining and Digihost, may even be delisted from the New York Stock Exchange (NYSE) and Nasdaq as a result of their shares falling below the $1 mark.

The standout performer from the previous year, Argo Blockchain (ArgB), said it was having trouble attracting (and keeping) investors. This occurs shortly after Core Scientific (CORZ), another publicly traded miner, submitted a bankruptcy petition to the Securities and Exchange Commission (SEC).

Spiking Energy Prices

Crypto Stock Pricing Holds Steady

Although bitcoin is where bitcoin miners make their money, their stock prices haven’t declined in tandem with the cryptocurrency king; rather, they have plummeted considerably further.

Bitcoin and ethereum have maintained stable, low prices over the past month. Ethereum has largely stayed in the low $1,300s while bitcoin has largely remained in the $19,000 price range.

That eventually shifted last week when Ethereum crossed the $1,500 mark for the first time since mid-September and bitcoin recovered $20,000 following a three-week decline. Both tokens are still around 70% behind their all-time highs from last November despite recent increases.

On Wednesday cryptocurrency trading declined 12% sequentially to $51 million as a result of investors staying away from other speculative assets due to a collapse in the larger market. It had increased by 860% to $51 million the previous year.

Investors rearranged their portfolios to benefit from higher interest rates, which resulted in an increase in options trading of 10% and an increase in equity trading of 7% sequentially. 

Fed’s Fourth Straight Rate Hike

The Federal Open Market Committee made its harshest policy decision since the 1980s on Wednesday, following a two-day policy meeting. Investors are gauging options after the Feds made history when they announced a fourth straight three-quarter-point rate hike.

The massive increase resulted in a new target range for the central bank’s benchmark lending rate of 3.75% to 4%. The fed funds rate hasn’t been so high since January 2008. This decision would certainly worsen the economy for millions of American firms and households by increasing the cost of borrowing.

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  • Zahari Rangelov

    Zahari Rangelov is an experienced professional Forex trader and trading mentor with knowledge in technical and fundamental analysis, medium-term trading strategies, risk management and diversification. He has been involved in the foreign exchange markets since 2005, when he opened his first live account in 2007. Currently, Zahari is the Head of Sales & Business Development at TraderFactor's London branch. He provides lectures during webinars and seminars for traders on topics such as; Psychology of market participants’ moods, Investments & speculation with different financial instruments and Automated Expert Advisors & signal providers. Zahari’s success lies in his application of research-backed techniques and practices that have helped him become a successful forex trader, a mentor to many traders, and a respected authority figure within the trading community.