Mining Updates: Stronghold, Riot Platform, Compass Mining and More

A combination of rising electricity rates, deteriorating stocks in the case of publicly-traded companies, and shrinking margins saw to it that the majority of Bitcoin mining firms walked out of 2022 with minor bruises at the very least. For context, mining revenue got slashed by 37.50% from $15.3 billion in 2021 to $9.55 billion. Ill-prepared public miners experienced massive setbacks in and outside the market across the year resulting in executive resignations, bankruptcy filing and even lawsuits for reasons ranging from loan defaulting to contract breaches.

Trudging into a new chapter in 2023, casual observers and industry experts commentating on the expected outcome have concurred that the worst may not be over yet as more miners could be taken offline. Thus far, countable miners like Northern Data have continued operating from a strong financial position, but fewer are expected to come out at the top by the end of this market cycle. There is, however, still enough reason to look beyond the degrading mining economics. In particular, Bitcoin's prevailing high hash rate is a positive indicator that the network is healthy.

Bitcoin network hash rate. Source: Ycharts

The average hash rate grew almost steadily last year against a contrasting inference from the Bitcoin market. The chart above suggests that miners are still active in producing new blocks and as long as they do, market participants have nothing to worry about.

Bitcoin mining difficulty adjusts 3.6% downwards

The latest adjustment at block height 770,112 delivered a 3.6% decrease in mining difficulty, coming after a 3.27% increase in the previous difficulty adjustment on Dec 19.

Mining difficulty chart. Source: BTC.com

The decline to a difficulty reading of 34.09 trillion on Jan 3 was fairly anticipated. Some US miners were compelled to plug their units from the network towards the end of last month due to several reasons, including unfavorable weather conditions (winter storm), cash shortages and drastically impaired profitability.

Still, the current figure is almost 40% higher than the difficulty reading about a year ago – 24.37 trillion on Jan 8 2022. BitInfoCharts data estimated mining profitability at writing to be around US$0.065 per terahash per second, nearly a quarter of the figure it was a year ago.

Mining profitability chart. Source: BitInfoCharts

This lack of profitability complemented with rising cost of production has resulted in a hash price decline.

Hash price index chart. Source: Luxor Technologies

Though factors contributing to the current strain have varied from firm to firm, most ailing miners have shared poor expansion strategies in common.

Latest Corporate Updates

Poor treasury management to beleaguer more miners

Having accumulated as much as $500 million in unpaid expenses to at least 200 creditors, Compute North filed for bankruptcy in September 2022. Though the company had already shown signs of taking this path months prior, the announcement rocked the industry as the Minnesota-based firm had only completed a $385 million raise in February. Core Scientific, which had also indicated that it was in a difficult financial situation as early as October, similarly filed for bankruptcy protection heading into the festive season.

Marathon Digital, another miner, had exposure to Compute North, estimated to be around $80 million, according to Bloomberg. The effect of the exposure to the Nevada-based miner has thus far been mild and not a source of concern, but the figure in question is sufficient to place it [Marathon] on at-risk miners alongside Argo Blockchain. The latter is barely floating after getting saved from further financial distress by Galaxy Digital, which offered a $100 million fund package, including $65 million, the cost of acquisition of formerly Argo's flagship Texas-based Helios plant.

A string of Bitcoin mining executive resignations

The series of catastrophes witnessed throughout last year extended their impact beyond mining to lending services like Celsius, which went bankrupt whilst mulling a move to go public. Celsius is involved in an ongoing lawsuit with miner Core Scientific over a hosting contract. The mining company communicated on Tuesday its plan to shut down the former's mining rigs (more than 37,000 machines) under its operation. Core Scientific noted that the arrangement got a green light from the bankrupt crypto lending firm and will save $2 million in revenue per month.

Personnel change has also been observed in the industry. Compute North CEO Dave Perrill vacated his executive position a month before the company sank. Prior to this, Compass Mining's Whitney Gibbs had stepped down in July, while Jeffrey Kirt walked away from his position at Greenidge Generation at the beginning of October 2022. More recently, Bitfarms co-founder and CEO Emiliano Grodzki announced his exit from the Canadian miner less than a week before the end of last year.

Bitfarms mined 50% more in 2022 than it did in 2021

In its end-year operation update published Tuesday, Bitfarms said it mined 496 BTC last month, a significant increase from 363 in December 2021. The publicly-listed firm recorded a Bitcoin sum of 5,167 BTC mined across 2022, 49.6% higher than 3,453 BTC reported in 2021.

” We averaged 16.0 BTC mined per day during December. In the month, we deployed new miners and underclocked our least cost-efficient miners. This improved their efficiency by 15%, resulting in a reduction of nearly 4 MW of power consumption,” Bitfarms' Chief Mining Officer Ben Gagnon commented on the figures.

Remarking on the company's next steps, CEO Geoff Morphy said the company is ahead of schedule on its Canadian expansion goal.

Stronghold Digital swaps $17.9M debt for preferred stock

Stronghold Digital, which has actively been reducing its debt since summer, continued with its deleveraging transactions, revealing via a Tuesday SEC filing that it had agreed with noteholders to exchange $17.9 million of convertible debt for $23.1 million of convertible preferred stock. The terms of this deal stipulate that a tenth of the convertible notes will be cancelled in exchange for convertible preferred stock. A $0.40 per share common stock price will apply to the new equity, Series C preferred shares, being converted into common stock.

“We acknowledge the significant number of shares of common stock that could be issued […] but we believe this is necessary to preserve cash, reduce our financial obligations, and better position the Company to survive a potentially prolonged crypto market downturn,” CEO Greg Beard said.

The deal, expected to be sealed by Feb 20, adds to efforts by Stronghold Digital to ameliorate its books after previously disclosing an arrangement to return 26,200 mining rigs to lender NYDIG in August, clearing a $67.4 million debt in the process. The mining company earlier in summer switched the core of its business from mining to selling power generated from its pair of waste coal plants.  It also cancelled a hosting agreement with Northern Data in September to improve its cash flow. The latest cash-preserving decision is projected to help bring down its outstanding debt to under $55 million.

Compass Mining gets favoring verdict in a $1.5M lawsuit against hosting provider

The lawsuit filed by Compass Mining against its hosting firm Dynamics Mining in June 2022 came to a brief conclusion last Thursday following a ruling in favor of the former by Judge J. Travis Laster of the Delaware Court of Chancery. The case between the two companies started on the prior date after Compass Mining took legal action against Dynamics Mining for failing to deliver services as outlined in their hosting agreement.

“We demand a high level of honesty and integrity from our hosting providers and will aggressively protect our clientele when their interests are threatened,” Compass co-CEO Thomas Heller remarked in the  Dec 30 (Friday) post-ruling blog post.

In other news, Bitcoin mining giant Riot Blockchain announced a rebrand to Riot Platform on Tuesday – a move the company's CEO Jason Les said will help illustrate its “increasingly diversified business operations” beyond mining. Lex explained in a Jan 3 statement that the company has been expanding the scope and scale of its Bitcoin-focused operations hence the need to drop the ‘blockchain' tag.

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