Largest Bitcoin Miners See $1 Billion Wiped From Value

News
By Ian Evenden
published

The crypto crunch continues to bite

Stock image of a Bitcoin disintegrating
(Image credit: Shutterstock)

The top three Bitcoin mining companies being traded on the US stock market lost more than $1 billion in the second quarter of 2022, according to a report from Bloomberg. The losses, which were matched by those of the crypto exchanges miners rely on to bring their funds into the real world, came after the collapse of cryptocurrency prices, which led to the value of the companies’ holdings being written down.

The three companies, Core Scientific Inc., Marathon Digital Holdings Inc. and Riot Blockchain Inc., posted quarterly earnings reports that show losses of $862 million, $192 million and $366 million, respectively. Elsewhere, the US crypto exchange Coinbase Global registered a loss of $1.1 billion in the same period, while major Bitcoin investor Microstrategy Inc. also lost more than $1 billion.

The cause seems to be the drop in cryptocurrency prices as miners sold off their coins to cover their costs and fund expansion, as well as repay their debts, and this appears to be continuing into the third quarter of the year despite signs prices were rising again.. July saw the second highest Bitcoin sales of the year so far, with 6,200 coins sold. This follows a June in which 14,600 coins were sold, though only 3,900 were produced, according to figures from Arcane Crypto. Core Scientific is thought to have sold 80% of its holdings.

At the same time, the big mining concerns are taking out loans, with Marathon Digital taking out $100 million (and selling off mining rigs to raise a further $58 million) and Core Scientific going for a $100 million common stock purchase agreement with a private equity firm.

Bitcoin remains profitable for large-scale commercial operations, with each block solved currently worth 6.25BTC, or roughly $120,000 at today’s prices. Energy consumption remains one of the major costs, with US electricity costs rising 12.6% in the last year. The price of the ASICs used to mine the coins has dropped, according to figures from Forbes, by up to 70% this year. As prices fluctuate, less efficient miners tend to give up, leaving the market in the hands of those with higher-performance mining equipment.

Mining profitability, measured in dollars per terahash per second, peaked in 2017 at $3.39/TH/s. Today it sits at around ten cents/TH/s, having been at 41 cents in 2021.

Ian Evenden
Ian Evenden
Freelance News Writer

Ian Evenden is a UK-based news writer for Tom’s Hardware US. He’ll write about anything, but stories about Raspberry Pi and DIY robots seem to find their way to him.

20 Comments Comment from the forums
  • gg83
    Hey, thanks for the numbers and prospective! If they lost $1 billion, how much did they make overall? " Mining profitability, measured in dollars per terahash per second, peaked in 2017 at $3.39/TH/s. Today it sits at around ten cents/TH/s, having been at 41 cents in 2021. " this is a really interesting metric
    Reply
  • InvalidError
    Slowly going the way of over-leveraged banks as more people feel like crypto may end with a bank run type scenario.
    Reply
  • edzieba
    InvalidError said:
    Slowly going the way of over-leveraged banks as more people feel like crypto may end with a bank run type scenario.
    A bank run is made possible because the majority of banks are fractional-reserve: they do not actually hold 100% of the funds you have 'stored' by them (e.g. if they have 1000 customers with accounts of $1000 each, the bank does not have $1,000,000 on hand, but has maybe $100,000 available and $900,000 invested elsewhere). This works right up until all customers want to withdraw all their cash, which is uncommon enough for fractional reserve banking to be the norm. If you think "that's just a Ponzi scheme!", well, welcome to modern banking, I guess. It works if you don't look too closely and nobody topples the scheme with any subprime lending crises or the like.
    Cryptocurrency does not have this fractional reserve nature inherently, but individual companies that have taken cryptocurrency and then uses it elsewhere to make money. Hyperinflation is also not a possibility, as the vast majority of coins (including all the valuable ones) are either deflationary or have strong inflation controls as part of the protocol.
    They are still vulnerable to regular old nobody-wants-to-buy-your-currency collapse , but that's an entirely different mechanism than a run on a bank. Bitcoin specifically is not vulnerable to the same manner of currency crises that have affected national currencies, but that does not mean it is vulnerable to entirely new and interesting (in the Confucian sense) ones.
    It's status as a value intermediary rather than a value store - people think about "what USD is x BTC worth?" when transacting it, rather than "what is what I'm buying worth in BTC?" - further complicates things. If transaction transiency is short enough and valuation flux slow enough, the BTC network can function just as well at "1 BTC is worth 1 cent" and "1 BTC is worth $1 million". That's no consolation to those who try and use it as a value store, though.
    Analogies with previous currency crises are not necessarily applicable, so pretty much the most accurate prediction that can be made is "it'll go up and down in value some more, just as it has for the last decade".
    Reply
  • Brian D Smith
    :D
    Reply
  • -Fran-
    edzieba said:
    A bank run is made possible because the majority of banks are fractional-reserve: they do not actually hold 100% of the funds you have 'stored' by them (e.g. if they have 1000 customers with accounts of $1000 each, the bank does not have $1,000,000 on hand, but has maybe $100,000 available and $900,000 invested elsewhere). This works right up until all customers want to withdraw all their cash, which is uncommon enough for fractional reserve banking to be the norm. If you think "that's just a Ponzi scheme!", well, welcome to modern banking, I guess. It works if you don't look too closely and nobody topples the scheme with any subprime lending crises or the like.
    Cryptocurrency does not have this fractional reserve nature inherently, but individual companies that have taken cryptocurrency and then uses it elsewhere to make money. Hyperinflation is also not a possibility, as the vast majority of coins (including all the valuable ones) are either deflationary or have strong inflation controls as part of the protocol.
    They are still vulnerable to regular old nobody-wants-to-buy-your-currency collapse , but that's an entirely different mechanism than a run on a bank. Bitcoin specifically is not vulnerable to the same manner of currency crises that have affected national currencies, but that does not mean it is vulnerable to entirely new and interesting (in the Confucian sense) ones.
    It's status as a value intermediary rather than a value store - people think about "what USD is x BTC worth?" when transacting it, rather than "what is what I'm buying worth in BTC?" - further complicates things. If transaction transiency is short enough and valuation flux slow enough, the BTC network can function just as well at "1 BTC is worth 1 cent" and "1 BTC is worth $1 million". That's no consolation to those who try and use it as a value store, though.
    Analogies with previous currency crises are not necessarily applicable, so pretty much the most accurate prediction that can be made is "it'll go up and down in value some more, just as it has for the last decade".
    Your takes on how Banks operate is just not correct and it varies from Country to Country, which is what crytpo stuff doesn't have: legislation and consumer protection.

    Banks in several places outside of the USA can't have a situation where they can't pay their clients if they all come to collect (it's called "provisioning"; edit: I got the term wrong as provisioning is for lending so they don't default, but same-ish principle) and they have different types of accounts as well which operate with different protection. That's not even taking into account insurance and other optional mechanisms you can opt-in into or are State backed. If the Banks in the USA work in such a way that clients can get screwed, that's a problem specific to the USA, sorry.

    Regards.
    Reply
  • InvalidError
    edzieba said:
    They are still vulnerable to regular old nobody-wants-to-buy-your-currency collapse , but that's an entirely different mechanism than a run on a bank.
    It looks fundamentally the same to me: if a large enough number of people attempt to cash out of crypto at the same time, the value crashes, prompts more people to cash out before it gets even worse and the whole thing effectively becomes insolvent: you have millions of coins likely acquired at a substantial personal cost still in people's hands but nobody left willing to buy them for any meaningful amount of money.

    The responsibilities and liabilities may get shuffled around but the main consequence is still the same: can't get your money back.
    Reply
  • daworstplaya
    Great news! Now people just need to realize Crypto currency have no value and the world will be a better place.
    Reply
  • TJ Hooker
    InvalidError said:
    It looks fundamentally the same to me: if a large enough number of people attempt to cash out of crypto at the same time, the value crashes, prompts more people to cash out before it gets even worse and the whole thing effectively becomes insolvent: you have millions of coins likely acquired at a substantial personal cost still in people's hands but nobody left willing to buy them for any meaningful amount of money.

    The responsibilities and liabilities may get shuffled around but the main consequence is still the same: can't get your money back.
    I'm going to have to agree with edzieba, what you're describing is completely different than a bank run. The situation you're describing involves an asset's value dropping dramatically/going to zero (i.e. selloff or collapse). In the case of a bank run, the asset is cash, and bank runs do not collapse the value of cash. Quite the opposite, the value of cash would, if anything, increase in a bank run scenario. A bank run occurs when demand outstrips supply of the asset (i.e. cash), a selloff occurs when supply outstrips demand (or demand disappears entirely, resulting in a complete price collapse).
    Reply
  • TJ Hooker
    gg83 said:
    Mining profitability, measured in dollars per terahash per second, peaked in 2017 at $3.39/TH/s. Today it sits at around ten cents/TH/s, having been at 41 cents in 2021. " this is a really interesting metric
    Indeed, although it doesn't quite paint the complete picture, as you'd also have to look at how the price of a TH/s worth of mining capacity has varied over the years (both in terms of upfront costs, and operating expenses i.e. power consumption).
    Reply
  • InvalidError
    TJ Hooker said:
    In the case of a bank run, the asset is cash, and bank runs do not collapse the value of cash. Quite the opposite, the value of cash would, if anything, increase in a bank run scenario.
    When an entire currency becomes insolvent from a systemic collapse of the banking system, its effective value trends towards zero.
    Reply