“It’s a bit a last-man-standing situation,” says Fred Thiel, CEO of US-based Marathon Digital Holdings. His crypto mining company, among the largest in the world, found itself – like the rest of the industry – in the path of a perfect storm.
Over the past year, the industry has been hit by a fall in the price of bitcoin, combined with rising energy costs and an increase in mining difficulty – a reflection of the amount of computing power being directed towards the bitcoin network, which dictates the proportion of coins miners can earn.
At the height of the 2021 boom, profit margins in the mining sector reached 90%, says Thiel. But now they have “completely collapsed.” If the price of bitcoin doesn’t recover, he says, there will be “a lot more pain” and companies that are only marginally profitable today will find themselves “very underwater.”
As they strive to cut costs, miners play a high-stakes game of chicken. In spring 2024, halving, a mechanism built into the Bitcoin system that periodically halves the number of allocated coins, will significantly reduce mining profits. The goal of mining companies is to ensure that they are in a strong enough financial position to survive declining profits longer than anyone else; As miners give in and leave the network, the share of coins earned by others will increase.
“Not every miner that is currently struggling will be able to survive the halving,” says Jeff Burkey, vice president of business development at Foundry, which operates its own mining facilities, a large-scale mining pool and a mining marketplace. mining equipment. This dynamic will create a rush among miners to put their houses in order, he explains.
Miners will seek to gain additional profit margin wherever they can, whether by deploying superior hardware and cooling techniques, developing software to closely monitor machine performance, setting up in territories where energy is cheaper or by renegotiating the terms of their loans.
Others, like Geosyn Mining, aim for vertical integration, right down to the energy powering the facilities. The company, says CEO Caleb Ward, wants to build its own solar farm to power its machines, eliminating a significant cost. “As an industry, we need to think more about how we protect ourselves against risk,” he says. “It’s not just about shooting for the moon.”
