FTX Fallout Slams Bitcoin Miners, More Bankruptcies Coming

What Happened

With Bitcoin’s price down 20% since news of FTX’s financial troubles began circulating on November 6, bitcoin miners now are earning less revenue than ever before.

This blow to bitcoin’s price is narrowing margins as conditions deteriorate for miners in a year marred by crypto’s bear market and rising energy costs, and it has the potential to drive companies that have survived thus far into bankruptcy.

Broader Context: FTX Fiasco Shakes Every Corner of the Cryptosphere

As news of FTX’s demise came to light, the ensuing bank run on the exchange’s accounts precipitated a market meltdown. Bitcoin cratered to $15,500 and the wider crypto market crashed with it. A host of projects and companies had direct exposure to FTX and its sister company Alameda, either by holding funds on the exchange, investing in the companies, or lending them money. Notable blue-chip crypto firms with money tied up in Sam Bankman-Fried’s foundering empire include Galaxy Digital, Coinbase, Coinshares, and Genesis Trading.

It doesn’t seem that publicly traded bitcoin miners had direct exposure to FTX and Alameda. For their part, Marathon Digital announced that it never had, as did Hut 8.

But Bitcoin miners have been shaken by the knock-on effects of FTX’s situation. The market selloff has weighed on mining stocks, even taking into account a minor rally after bitcoin recovered from last week’s $15,500 low to the current $16,500 range.

Additionally, hashprice–a measure of the revenue potential of a unit of bitcoin mining computing power–hit an all-time low last week.

The following chart shows bitcoin’s hashprice in terms of dollars per terahash (TH) per day (a top-of-the-line machine like the S19j Pro produces 100 TH per second).

At current hashprice levels, a miner who is running an industry standard machine like the Antminer S19j Pro is making only $6 in revenue per day per machine, compared to $36 per day in revenue this time last year.

Outlooks And Implications: Bitcoin Mining Margins Are Crushed In Recent Market Rout

With hashprice experiencing new lows, bitcoin mining margins for many run-of-the mill players have basically evaporated.

At current levels, miners with hosting and/or power contracts for 8 cents/kWh who use industry standard S19j Pro bitcoin mining machines are effectively at breakeven. Miners with power rates above this level are underwater.

The table below shows breakeven hashprice levels for different Bitcoin mining machines under different power rates. It is color coded: green indicates profitability, yellow marginal profitability, orange breakeven and red unprofitability.

Most public miners replaced their older machines (like the S17) this year with newer equipment such as the S19j Pro. A few, including Marathon, Riot, and Bitfarms, have started deploying the S19 XP, the most powerful and efficient miner to date; still, this model makes up a fraction of these miners’ deployed capacity.

Even at power costs of 5-6 cents/kWh, miners using the S19j Pro are sweating the current market environment.

Decision Points: FTX Contagion Could Bring New Bitcoin Miner Bankruptcies

Bitcoin mining margins are completely compressed and capital is becoming increasingly more difficult to attain. For publicly traded bitcoin miners, the current environment puts them in situations ranging from uneasy to potentially dire.

Even before Bitcoin’s most recent price decline, some of these miners showed signs of trouble. Core Scientific, for instance, hinted at possible bankruptcy in an October SEC filing. Core’s stock is down 98% since it started trading in April of last year.

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Other miners are scrambling to restructure their debt, like Stronghold Digital Mining, which returned 26,200 bitcoin mining machines to lender NYDIG to nullify $67.4 million of debt.

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As Q3 earnings reports continue to trickle in, we’ll get a better idea for which miners are best situated to weather the current market conditions. Those with solid balance sheets and low debt, like Hut 8 and Riot, will be able to keep up with debts and remain liquid. As we’ve seen with Core Scientific, highly leveraged miners could end up in hot water if Bitcoin’s price stays depressed or goes lower.

Mining stocks have been pummeled this year, but that doesn’t mean that they can’t go lower.