Sirwin
Sirwin

Bitcoin Mining — The Most Troubled Crypto Industry!


Do you want to know why bitcoin mining is in trouble? Read this article and find out!

 

Bitcoin mining is in trouble. Since the beginning of this freezing crypto winter companies like Core Scientific, Argo Blockchain and Bit Digital have been encountering multiple issues with their cash flow and Bitcoin reserves. Some even had to sell some Bitcoin to keep things going (keep in mind that most mining companies are saving ~80% of the mined BTC).

So, what happened with the market and why are giants like Core Scientific going out of business?

The Crypto Market Is Crashing

The crypto market started crashing way before the war in Ukraine, so there’s no need to get into that right now. It all actually started with the Covid-19 crisis.

The crypto market has become, over the years, a massive part of the worldwide economy. With more than $3B in total market capitalization at its peak, crypto has been among the top industries on a global scale. So, when the pandemic hit, the crypto market was forced to deal with the consequences of that.

As you might know, the worldwide economy is a very complex structure which relies on international trade and relationships. Well, imagine how bad of a hit was the pandemic when all the top countries had to close their borders and stop all interaction. The economy was practically frozen for more than a year and a half while the pandemic was whipping out reliable workers and future specialists.

Henceforth, the most valuable aspect of the economy, the cash flow, was gone. The money wasn’t moving, the wages weren’t paid and people didn’t have money to invest. Cryptocurrency, as the most “risky” asset, started falling first. At this point, governments started printing more and more money, which triggered another huge problem, inflation.

The inflation we see right now in Europe, Canada and the US is the consequence of poor decision-making policies during the pandemic. The governments decided to just fill the holes by printing more and more money( the US government only printed 40% of the total US Dollar supply) instead of letting the economy flow naturally. The demand-supply balance was broken.

So now we’re dealing with historically high inflation all other the globe. While powerful economies like the US, Germany and UK are successfully dealing with them, smaller countries are slowly dying and running out of cash reserves.

The inflation in the US is sitting at ~8% right now, while the normal inflation should be >2%. Europe is not doing better as the average inflation there is ~11%. Again, while normal inflation would be sitting at >2%.

Now, what does all this have to do with Bitcoin mining? Well, as most businesses do, a bitcoin mining company is really just creating a product( the Bitcoin). Due to all these economical anomalies, Bitcoin went from ~$60k to nearly $15k in a span of a year. That’s disastrous, especially when you think about the fact that most of these companies took loans while Bitcoin was still selling at ~$50k and now they need to return them when Bitcoin is selling at ~$17k.

But, didn’t they predict that a bear market would eventually happen? Yes, they did! But they couldn’t predict another important thing!

The War in Ukraine

The war in Ukraine has been the last nail in the coffins of multiple Bitcoin miners.

First of all, it caused an outrageous energetical crisis. The prices of energy, gas and petrol went through the roof and nobody can do anything about it. The Russians are responding to sanctions the way they know best, by liming the export of natural resources. Now, take a second and think about the only thing Bitcoin cannot be mined without. Bingo! Without electricity, all your expensive computing machines are useless.

So now, the price of selling a Bitcoin is dropping while the price of producing a Bitcoin is increasing constantly. The worldwide price of electricity has increased by an average of 25% since the start of the Ukrainian war and it still continues to rise on a day-to-day basis.

Add here the fact that the Ukrainian war inflated the pace of the rising inflation and you’ll get the best formula to take all the Bitcoin miners out of business once and for all.

While some of them had little liabilities and enough cash/crypto reserves to survive to this day, others didn’t have the luxury of surviving this crypto winter.

Unstable Crypto Market

This crypto winter revealed a lot of incompetent blockchain companies that grew massive during the bull market and now, as the crypto winter came, can’t manage to get through it.

LUNA, FTX, Alameda Research, Voyager Digital, Celsius … the list goes on and on with more than 100 projects that either went bankrupt or closed their operations just because they fooled the crypto industry into believing they have something good going on. In reality, they just profited from a great bull and grew a company unable to operate in harsh conditions. All these falls drove the prices down even further.

The ones that are still standing aren’t doing better. Binance with its FUDs and scandals, Solana with its huge problems and even Crypto.com with its “Proof of Reserves”. All these little scandals are driving more and more investors away from the crypto market.

Closing Thoughts

While the crypto market is very harsh at this point, there are still bitcoin mining companies with great management and lots of cash to survive this literal apocalypse. The industry as a whole won’t die. But you should expect that the companies you thought are legit will fall just because they couldn’t predict what would happen on the 24th of February 2022.

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