2023 Survival Guide for Crypto Mining Enterprises

Original compilation: PANews

Original compilation: PANews

For Bitcoin mining companies, 2022 will undoubtedly be a storm.

The Federal Reserve's interest rate hike has increased the cost of capital, the "stubborn" increase in the Bitcoin network computing power and the sharp drop in prices have led to the failure of corporate management strategies, and ultimately lead to lower and lower profits from mining Bitcoin. The data will not lie, the stock prices of the five largest crypto mining companies listed on the US stock market have all suffered Waterloo, Core Scientific (CORZ), Riot Blockchain (RIOT), Bitfarms (BITF), Iris Energy (IREN) and CleanSpark (CLSK) trading prices It has fallen 99%, 85%, 91%, 92% and 79%, respectively.

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What did bitcoin mining companies do wrong before?

In the past few years, some Bitcoin mining companies will choose to sell the BTC they mine instead of financing their business operations through debt and other capital. In fact, this model can only work when the following two conditions are true:

1. The price of Bitcoin continues to rise, leading to more and more people who want to participate in the encryption market;

2. The capital cost of Bitcoin mining is very low, leading to more and more people who want to participate in mining in pursuit of profits.

Although the above two scenarios have occurred in the past few years, a very strange situation has occurred in the Bitcoin mining market, namely: Bitcoin mining companies do not sell BTC, but make money through some "financial means".

Theoretically, the operating model of Bitcoin mining enterprises should be:Mining companies purchase BTC mining machines to mine BTC, sell some of the mined BTC, and use the proceeds to pay for the costs of maintaining the business.

But in reality, the operating model of bitcoin mining enterprises is as follows:Mining companies purchase BTC mining machines to mine BTC, and at the same time borrow from the debt market or securities market to obtain funds, and use the obtained funds to pay for the expenses required to maintain business operations.

Of course, not all Bitcoin mining companies do this, but mining companies like MarathonDigital have stuffed all the BTC mined in the past 26 months on their balance sheets and have not sold any BTC to pay for their own operating expenses. Can get a glimpse of it. Obviously, this approach is problematic, because companies should continue to operate steadily without relying on the capital market, and then make money through the correct profit model, otherwise problems will arise.

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The 2023 Crypto Mining Survival Guide

When the time comes to 2023, I believe that every struggling bitcoin mining company is asking a question: what to do? Frankly, while the crypto market hasn’t recovered from the pessimism, there are still reasons for optimism.

First, bitcoin miners should mine BTC when it is profitable and shut down when it is not. In simple terms, every mining machine can be easily turned off and on. However, in the actual operation process, mining companies did not flexibly adjust the start and stop of mining machines according to the BTC price or electricity price. On the contrary, bitcoin mining companies are often held back by bitcoin price fluctuations, and will even continue mining in an unprofitable market environment. Therefore, Bitcoin mining companies need to implement flexible and effective "capital management strategies" instead of being limited to the thinking of "holding all mined BTC". fall, electricity prices start to rise, or both) choose to dump some of the mined BTC in exchange for funds to support business operations.

Summarize

Summarize

No matter what happens in 2023, we hope that those bitcoin mining companies that have experienced market storms and downturns in 2022 can make some changes, especially those large listed mining companies, they should re-examine their strategies, so as to prepare for the future sustainable development.

Hopefully, Bitcoin miners can learn something from the painful market lessons of 2022.