PoW Mining
PoW Mining Update – Heavy Debt, Argo Bailout, Hashrate Fluctuations, and Plummeting ASIC Prices
As 2023 nears, the PoW mining sector continues to find its footing amidst a lingering downmarket. The following are a few developments and insights from the past week highlighting some of this activity.
A Mountain of Liabilities
As it stands, much of the problems plaguing the mining sector are self-imposed. Per a recent report by Hashrate Index, public mining companies currently maintain over $4B in debt – much of which was taken on during the bull market of 2021. During this time, companies were expanding too rapidly in an attempt to capitalize over competition. Looking back, it is clear that this was not the right approach, and more sustainable growth should have been the goal.
Unsurprisingly, Core Scientific is the worst offender here, with roughly $1.3B in liabilities. It is the various decisions made over the past year that led the company to find itself in this position, and forced in to bankruptcy.
Currently, the three public mining outfits which boast the worst debt-to-equity ratio are as follows.
- Core Scientific (26.70)
- Greenidge (18)
- Stronghold (11.1)
While names like Core Scientific, Greenidge, and Argo have attracted a lot of attention as of late due to varying degrees of financial restructuring, these lopsided ratios, which are shared among many industry participants, would indicate that we should soon expect others to follow the same path.
Argo Bailout
Roughly two weeks ago mining outfit Argo relayed to the London Stock Exchange that it was,
“…in advanced negotiations with a third party to sell certain assets and engage in an equipment financing transaction that the Company believes will strengthen its balance sheet and improve its liquidity”
While many remained skeptical that the company would be able to avoid bankruptcy, after seeing attempts to save rival Core Scientific fizzle out, the company has announced that it was indeed successful.
In a press release issued Dec. 28th, 2022, Argo states that it has come to an agreement with Galaxy Digital that will see the following take place.
- Helios Facility, located in Texas, sold to Galaxy Digital for $65M
- Asset-backed loans refinanced in to a new $35M loan through Galaxy Digital
Argo CEO, Peter Wall, commented on the development, stating,
“This transaction with Galaxy is a transformational one for Argo and benefits the Company in several ways. It reduces our debt by $41 million (£34 million) and provides us with a stronger balance sheet and enhanced liquidity to help ensure continued operations through the ongoing bear market. It also allows us to focus on optimizing our operations with significantly lower capex and opex requirements.”
Notably, Argo has stated that while it has sold off its Helios Facility, it will maintain ownership of its fleet of miners, which will now be hosted by Galaxy Digital. Overall, the company states that this move will not only decrease its debt by $41M, but improve its liquidity.
The Storm Effect
A recent series of winter storms have wreaked havoc throughout the United States and Canada, resulting in scores of deaths. During this time, the ability for the mining sector to help with grid stabilization was on full display.
While much has been made about the demands that mining can place on electric grids, there is a positive to be found. Many large electricity consumers do not have the ability to shut down on a whim – PoW mining outfits have no issue with this though. This means that when there is a surplus of electricity, they operate and generate revenue for electricity providers. When adverse events occur like the aforementioned winter storms, and electricity demands elsewhere skyrocket, the mining sector can simply shut off to ensure the grid remains stable.
This process, which is often referred to as curtailment, saw the hashrate of the Bitcoin network drop by as much as 40% over the weekend. While this stoked fears by many that did not know what was happening, the network hashrate quickly rebounded after miners came back online.
Plummeting ASIC Prices
With the price of digital assets remaining depressed heading in to 2023, there is a silver lining for PoW miners coming out of this bear market – discounted ASIC devices.
These specialized devices, which are used by all the large mining outfits, are typically quite costly. Due to market events over the past year though, the price of ASIC devices have plummeted from their peak, as demand wanes.
As it stands, depending on the efficiency of the device, ASIC miners have seen a drop in value between 89-91% when looking at dollars per terahash .
Source: Hashrate Index $/TH
Currently, as mining outfits that made bad decisions during the past bull market are trimming operations and selling off assets, those that were more savvy in their approach are now capitalizing on the cheap gear – preparing for the next market cycle upwards.
