Miners continue to fall victim to crypto winter. The latest to file for Chapter 11 bankruptcy was Bitcoin miner Core Scientific.
The sharp drop in the major cryptocurrency has led to a significant drop in miners' income. And while cash flow is still positive, revenues are not enough to cover operating expenses. The goal is for the company to restructure under the Chapter 11 process, rather than liquidate completely.
Core Scientific has struggled throughout the year, as have miners throughout the industry. They have been squeezed on both sides - falling revenues due to Bitcoin prices and rising costs as a result of skyrocketing electricity prices around the world.
Core Scientific stock was worth more than $4 billion last summer, but is now down 98% from all-time highs, and its current market cap is $70 million.
The share price tripled last week when financial services company B. Riley offered to provide Core Scientific with $72 million in non-cash financing. Since then, the stock has since given up some of those gains.
Tough times for miners will continue
Across the industry, miners are having a tough time. Energy costs and the Bitcoin price are the two most vital inputs for the bottom line of a bitcoin miner, and both have moved significantly against them this year.
The same is true for the hashing rate, which has fluctuated near record highs for most of the year. A higher hash rate means that more processing power is needed to verify transactions on the Bitcoin blockchain.
While a higher hash rate is seen as a positive because it increases network security - it will take more energy and time to take over the network - they also affect miners' profit margins.
When the hash rate hit another record high of 250 TH/s in early October, blockchain analytics company Glassnode warned that "miners are somewhat on the cusp of acute income stress." The latest Core Scientific story proves that.
Looking at miners' reserves, the number of bitcoins held by the large mining pools has also been steadily declining this year.
Mining stocks are a levered bet on Bitcoin. It's a poignant reminder that with these mining companies' revenue denominated in Bitcoin, they are obviously extremely volatile stocks.
This year brought a perfect storm that not only caused bitcoin prices to plummet, but also increased energy costs, meaning that miners were hit twice as hard.
Looking at share prices, many companies have fallen more than the price of Bitcoin. Hopes that 2023 will be better are still elusive. But for Core Scientific, the road ahead is murkier. Now embroiled in the Chapter 11 process, the company hopes to restructure and weather the storm, but there's no getting around the fact that the miner market is likely to remain challenging, at least in the short to medium term.
Morgan Stanley on the future of Bitcoin
Before the end of the year, the market may not see any new drivers of volatility. At least, they are not planned for the Christmas holiday period. Although, as this year's history shows, there is always a chance for the unexpected in the crypto market.
So while volatility is low and technical scenarios are more or less clear, suggesting we revisit influencers' opinions.
Over the past three months, James Gorman, chairman and CEO of American multinational investment management and financial services firm Morgan Stanley, has offered his opinion on the future of cryptocurrency.
In an interview with Jim Cramer on CNBC's "Mad Money" program in September, Gorman noted:
"What I've been worried about the last few years is the number of people who've been speculating in crypto, but, you know, it's fine if bought at $600 and it's at $20,000... Listen, I think it's an asset. It's a speculative asset by definition. I don't think it's a new form of stored value. I think it's subject to a lot of regulatory risk.""I wish I bought it at $600, but I'm glad I didn't buy it at $60,000... I've seen a lot of individual investors get caught up in the hype. We've seen this before — dot-com. We saw this in the early 90s and 87 with the Black Monday crash and so on. My worry for that group is 'listen, your job is not to speculate'. It's to build long-term wealth with stability."
Gorman pointed out that when the very rich buy Bitcoin, it's a different story. They could put one percent of their money on anything. They could bet it on racehorses, bet it on crypto, and that's okay. It's not a risk because they could afford to lose it.
Later in October, Gorman said he doesn't think cryptocurrencies are a fad and doesn't think they will disappear.
"I don't think crypto's a fad, I don't think it's going away... I don't know what the value of bitcoin should or shouldn't be, but these things aren't going away and the blockchain technology supporting it is obviously very real and powerful... For us, honestly it's just not a huge part of the business demand for our clients.. That may evolve and will evolve with it, but certainly it's not what's driving our economics one way or the other."
Already in December, Morgan Stanley's CEO said he doesn't think Bitcoin is a fad, but he himself can't give the major cryptocurrency intrinsic value.
