Crypto Bear Market Leaves Miners with Little to No Returns

The traditional saying that connotes survival of the fittest directly describes how the crypto mining industry looks this year. The 2022 bear market has been brutal, with digital asset prices continuously falling and credit contagion spreading through the crypto lending markets. 


Some miners dropped their equipment, while others decided to find more profitable ways of earning, such as hosting mining companies. However, miners who still bear thick skins worldwide can find mining hosting and repair sites nearby through platforms such as Mininglisting.


The tale of the miners, as we are about to find out, is beginning to spiral into sad stories. Whether it’s facing colossal debts, downing tools due to low profits, unbearable energy prices, this is a brief story of how scary it is for the present day crypto miner;


Hashrate Keeps Rising


Cryptocurrency investors have been through difficult times with the ongoing bear market. However, they are not the only ones. Miners are going through the same.


In addition to declining prices, credit has also contracted, and mining energy costs have increased due to inflation. Furthermore, Bitcoin’s hashrate has continued to rise, and the flagship virtual asset is becoming more expensive to mine by the day and night.


Usually, when there is a bear market, Bitcoin’s production costs exceed the spot price. That increases the cost of mining, which results in lower profit margins for miners. Due to this, miners are forced to sell their acquired assets to remain profitable.


Something worth noting, the steady rise in the hashrate has been attributed to the delays in the production of next-generation ASIC chips. Miners purchased these new machines during the previous year, but they arrived and commenced operations this year due to high demand and low production. 



Mining Costs are High


While rising prices affect all aspects of the mining industry, the rising cost of power and fuel is the most common factor impacting mining operations based on a survey of more than 100 miners by GlobalData.


During the peak of the 2018-2019 cycle, mining difficulty experienced a significant decline in value by up to 16% per week. The financial strain caused this that miners were experiencing.


This pattern has not repeated during the next cycle. After a short period of stabilization, mining difficulty started to increase significantly. It reached levels 68% higher than the November 2021 ATH.


On the other hand, for the last 12 months, the revenue generated by denominated miners using BTC has decreased significantly by 68%, according to a Cryptoslate report.



Who is Surviving?


This year’s decline in publicly traded mining stocks has shaken investors’ confidence in the sector. However, this could be an opportunity for long-term investors to acquire mining equipment at a good price. According to Jappa of Blockware Solution, the timing of the exact bottom is not easy. Still, various on-chain and market indicators suggest that the time is right to accumulate both bitcoin and mining rigs.


Miners who survived the previous bear markets are the ones who will be able to ride out the next phase. According to Galaxy’s Fabiano, being very opportunistic during the next six months will allow them to take advantage of the falling prices of ASICs. He also noted that the infrastructure side of the industry would be an amazing opportunity for miners.


According to Zach Bradford, the CEO of CleanSpark, miners can benefit from the current market conditions by having the latest generation equipment and locked-in power rates. He noted that this would allow them to deliver value to their shareholders.


Final Thoughts


The mining industry is struggling due to the events surrounding the FTX insolvency. Due to the decline in revenue streams, the mining industry has experienced a significant increase in production costs and a decrease in crypto prices.


The total miner balances are currently at around 78.0k BTC, equivalent to over $1.2 billion at current prices of $16.5k. It is not expected that most of these will be distributed, but it gives a sense of the potential risk. 


Miners will likely be under financial stress until the price of Bitcoin clears the $17.0k production level.