The 2022 bear market is having a greater impact on BTC miners than previous downturns, especially with so many publicly traded miners struggling to meet their debt obligations.
Bitcoin (BTC) mining is the foundation of the BTC ecosystem, and miners’ returns provide insight into BTC price movements as well as the overall health of the crypto sector.
Bitcoin miners are struggling in the current bear market, as has been widely reported. Blockstream, a leading Bitcoin miner, recently raised funds at 70% off.
With a few exceptions, current mining activity is similar to previous BTC bear markets.
Let’s take a closer look at what this means for the current Bitcoin cycle.
Bitcoin mining profitability can be calculated by dividing miner revenue per kilowatt hour (kWh). A BTC mining bear market, according to Jaran Mellerud, a Bitcoin analyst for Hashrate Index, has a sustained period of revenue per kWh of less than $0.25. He calculates using the most efficient Bitcoin mining machine on the market, based on his assumption.
The 2018 bear market lasted nearly a year, with kWh reaching a low of $0.12. Following the downtrend, a brief bull market ensued, lasting until the 2019 bear market began.
According to Mellerud, the 2019 bear market lasted 463 days and produced an all-time low revenue per kWh of $0.083, while Bitcoin fell to $5,000.
According to Mellerud’s revenue per kWh analysis, the most recent mining bear market began in April 2022. The current bear market had lasted 225 days as of December 8th, with a minimum revenue of $0.108 per kWh. Due to high energy prices, the number is higher than in previous bear cycles.
According to the current bear mining cycles, the market may continue to fall for at least 138 days before turning. The difference between this cycle and previous cycles is that previously, miners were mostly self-funded, whereas now, many miners are financing their rapid growth with debt.
During the 2021 bull market, Bitcoin mining stocks reached a total value of more than $17 billion. The bull market increased investor interest, causing BTC mining stocks to skyrocket from $2 billion in November 2020.
After reaching a bull market peak in 2021, crypto mining stocks have fallen dramatically, with many falling by 90%.
The massive amount of debt incurred by public mining firms at Bitcoin’s all-time high has resulted in a massive debt-to-equity ratio.
Core Scientific is a great example of how the bear market is increasing miners’ reliance on debt. Core Scientific had a debt-to-equity ratio of 0.6 prior to the mining downturn in April. Since the beginning of the bear market, that figure has risen to more than 24.2 debt-to-equity.
With the Bitcoin mining bear market expected to continue, more public miners will face equity squeezes, according to historical BTC trends. As miner debt continues to rise, investors may become alarmed, resulting in even lower stock market prices.
