After a harsh crypto winter, bitcoin miners are finally experiencing a financial resurgence, thanks to the cryptocurrency's rally above $30,000 and a decrease in electricity costs, leading to improved profitability.
Blockchain.com data reveals that the 30-day average mining revenue has climbed to $27.34 million a day, the highest since June of the previous year. This is a welcome change for miners who struggled with debt servicing as revenues hovered between $15 million and $21 million during the second half of 2022, although they remain short of the $61.2 million peak reached in November 2021.
Jaran Mellerud, analyst at bitcoin mining services firm Luxor, stated, "Many public miners were on the brink of bankruptcy at the end of last year. At the current bitcoin price, these companies' cash flows have substantially improved and most of them should have no problem paying their obligations."
Debt-to-equity ratios of miners have improved significantly, with companies restructuring and reducing debt in recent months. Marathon Digital Holdings' ratio fell from 2 to 0.5 since the year's beginning, while Greenidge Generation Holdings' ratio dropped from 11.7 to 5.8, as per Luxor's data.
The upturn has attracted investors back to publicly traded crypto mining firms. Major players such as Marathon and Riot Platforms have seen their share prices triple this year, while the Valkyrie Bitcoin Miners ETF has increased by 162%, and Greenidge has gained 137%. However, all of them have experienced losses since early 2022.
Bitcoin mining relies on energy-intensive computing systems to validate blocks of transactions on the blockchain. As a result, electricity accounts for a significant portion of their operating expenses. Analysts at BTIG stated that electricity costs for producing one bitcoin have dropped by approximately 40% since the end of last year.
Despite the continuous rise in computing power and mining difficulty, the 30-day average cost-per-transaction for miners has decreased to its lowest level since September, according to Blockchain.com data.
However, miners must remain cautious, as their success is dependent on bitcoin's volatile price trend. Kevin Kelly, head of research at Delphi Digital, predicts further volatility heading into summer, although he believes a favorable crypto environment will continue through 2023.
While many miners still have substantial debt to pay off and are facing challenges, Luxor's Mellerud said, "The bitcoin price increase has bought these companies time, but it would be detrimental for these companies if it were to fall back down to $20,000."
With the focus on debt reduction, most firms are not investing in new equipment, even though the estimated cost of new mining rigs has dropped around 69% since 2021. However, CleanSpark has taken advantage of falling prices, purchasing 45,000 new mining rigs to nearly double its computing power.
Miners should remain vigilant, as a sudden increase in power prices or a rapid drop in bitcoin value could herald another cold period. For now, as Marcus Sotiriou, analyst at digital asset broker GlobalBlock, said, "I don't think we're completely out of the woods, but I think the worst is behind us."
