During the bull market of 2021, the Bitcoin mining community took out enormous loans, which significantly impacted their profits during the next bear market.
The recent bankruptcy filing of Bitcoin miner Core Scientific, despite a $72 million relief offer from creditors, has prompted concerns regarding the overall health of the Bitcoin mining ecosystem amid a lengthy bear market. In addition, the public bitcoin miners owe more than $4 billion in liabilities, necessitating an expedient reorganization to reduce their unsustainable debt levels.
During the bull market of 2021, the Bitcoin mining community took out enormous loans, which significantly impacted their profits during the next bear market. Hashrate Index’s analysis of Bitcoin mining data reveals that the top 10 Miners owe more than $2.6 billion.
Core Scientific, the largest debtor with $1.3 billion in obligations as of September 30, has recently filed for Chapter 11 bankruptcy protection in Texas due to declining sales and BTC prices. The second-largest debtor, Marathon, has mostly convertible note liabilities totaling $851 million. Therefore, Marathon avoids bankruptcy by permitting the holders of convertible notes to convert them into shares of stock.
Most Bitcoin miners, including the third-largest debtor Greenidge, is reorganizing to decrease debt. However, as a sector, the debt-to-equity ratio of public bitcoin mining companies indicates a high degree of risk.
According to Hashrate Index, a debt-to-equity ratio of 2 or over is deemed dangerous in most industries. The graph below depicts the unusually high debt-to-equity ratios that famous Bitcoin miners are currently sporting.
Given that more than half of the 25 publicly traded bitcoin miners have extraordinarily high debt-to-equity ratios, restructurings and bankruptcy filings are possible in the mining sector until the bulls return.
While some firms may shut down or scale down operations to limit liability, sustainable miners can expand their footprint by purchasing the equipment and facilities of their competitors.
Greenidge struck a $74 million debt restructuring agreement with NYDIG, a Bitcoin-focused finance company, on December 20.
According to Coin Regency, the NYDIG arrangement would involve the acquisition of miners with a mining capability of roughly 2.8 exahashes per second (EH/s). In return, the mining company’s debt would be reduced from $57 million to $68 million.