Tough times continue for Bitcoin miners, what does 2023 hold?

Back in 2021, Bitcoin mining was a highly lucrative business. This is because BTC was trading well above the $30,000 mark, even reaching an all-time high of $67,000. However, things have only gone south since then.

The crypto winter, amplified by several disastrous events, has caused token prices to plummet. For instance, Bitcoin, the world’s oldest cryptocurrency, is down nearly 75 percent from its all-time high. This has had an immediate impact on Bitcoin mining firms.

Towards the end of December 2022, Bitcoin mining profitability had declined 70 percent and mining stocks registered 80 to 90 percent drops. As such, several of the top Bitcoin mining firms are now staring at massive losses.

For instance, on December 20, one of the largest Bitcoin mining firms, Core Scientific, filed for Chapter 11 bankruptcy. This is after the company’s stock dropped 98 percent in 2022. The firm’s market capitalisation is also in free fall, dropping from a $4.3 billion valuation in July 2021 to a mere $42 million at the time of writing.

Another prominent miner, Riot Blockchain, saw its stock tumble 85 percent in 2022. Recently, the firm even rebranded itself as Riot Platforms; a move to diversify its operations amid a bleak outlook for the wider Bitcoin mining industry. Core and Riot are not alone; popular miners such as Bitfarms, Iris Energy, and CleanSpark also traded 91 percent, 92 percent and 79 percent lower in 2022, respectively.

Faced with these difficulties, several mining firms have been forced to turn off their mining rigs and cut down on overheads. This was evident from the Bitcoin mining difficulty, which dropped 3.59 percent on Tuesday morning. This indicates that there are fewer miners on the network.

To make matters worse, the Arctic bomb cyclone towards the end of December forced several Bitcoin mining firms in the US to temporarily shut down operations. This was done to return power to the grid so that people could continue to heat their homes amid the sub-zero temperatures. This resulted in a 40 percent drop in hash rate during the last week of December.

Many experts believe that firms will look to sell their mined BTC and strengthen their balance sheets. Until now, most mining companies would hold onto their mined BTC and depend on capital from the debt or equity markets to cover operational expenses. However, with the current market scenario, it is getting extremely difficult to follow this way of working.

Further, Bitcoin analysts Jaran Mellerud and Colin Harper believe that publicly traded Bitcoin miners will either go private, merge with private firms or be acquired. One good example of this is Bitcoin miner Argo, which avoided bankruptcy by allowing Galaxy Digital to acquire its Helios facility for $65 million.

Some experts expect more bankruptcies in 2023, especially if the crypto markets do not improve in the coming months. "If these market conditions persist through the middle of next year, there will likely be significant attrition in the number of miners that remain viable," the CEO of Marathon Digital, Fred Thiel told Blockworks.

However, it’s not all doom, gloom and despair for Bitcoin miners. Experts believe that healthy mining companies, especially those that are prepared for the volatility and have strong balance sheets, could do well in 2023.  These firms can buy up equipment from struggling/bankrupt firms at much cheaper prices. They can then expand their operations and eat into the hashrate of these bankrupt firms.

For instance, Riot is seeking out buying opportunities as other mining firms go bust. Riot’s CEO Jason Les even said that firm is one of the "best-positioned acquirers" and is all set to expand its hashrate capacity from 5.6 exahashes per second (EH/s) to 12.5 EH/s by the Q1 of 2023.

Another firm that’s looking to grow in 2023 is Marathon Digital. According to its CEO, Fred Thiel, the firm is not actively focusing on acquisitions. Rather, it is looking to build on its current capabilities and increase its hashrate from 7 EH/s to 23 EH/s by mid-2023. However, Thiel did reserve the option of acquisitions, should a good opportunity come alone. “That being said, we’re keeping an eye on the market and how things develop to determine if there might be something of value to Marathon and our shareholders,” Thiel told Blockworks.

Additionally, some firms may look to diversify their operations. For instance, in Nov 2022, Applied Blockchain, one of the world's biggest hosting companies, renamed itself Applied Digital. This rebranding signalled the firm's interest in other operations besides BTC mining. This is a move that Riot could also be considering, especially with its rebranding announcement yesterday.

In an earnings call before its rebranding, CEO of Applied Digital, Wes Cummins, said that the firm’s hardware was being programmed for use "relating to image processing, graphics rendering, artificial intelligence and machine learning."

Another prominent Bitcoin miner, Hut 8, openly announced their pivot to high-performance computing (HPC) operations to survive the never-ending winter. The firm’s CEO said that the transition would include "potentially leveraging our GPU machines to provide AI, machine learning, or VFX rendering services to customers and mining the next most profitable proof-of-work digital asset during idle time."

The never-ending crypto winter looks poised to continue well into 2023. This spells terrible news for the cryptoverse, which is already reeling from 2022 losses. However, the tough times are not expected to affect all miners in the same way. Experts believe that the overleveraged firms will be weeded out, and the well-prepared ones will grow, while the flexible miners will adapt to survive.