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Distributed Ledger: Bitcoin miners see revenue tumble 80% from peak. Can they all survive?

Hello, welcome back to Distributed Ledger, our weekly crypto newsletter that reaches your inbox every Thursday. I’m Frances Yue, crypto reporter at MarketWatch. I’ll walk you through the latest and greatest in the digital asset world this week.

Find me on Twitter at @FrancesYue_ to send feedback, or tell us what you think we should cover. You can also reach me through email to share your personal stories with crypto.

Crypto in a snap

Bitcoin
BTCUSD,
-0.10%

gained about 5.3% over the past seven days, and was trading at around $20,131 on Thursday, according to CoinDesk data. Ether
ETHUSD,
+0.01%

added 3.6% over the seven-day stretch to around $1,365. Meme token Dogecoin
DOGEUSD,
0.14

rallied 9% while another dog-themed token, Shiba Inu
SHIBUSD,
,
traded 3.1% higher from seven days ago.

Crypto Metrics

Biggest Gainers

Price

%7-day return

Tokenize Xchange

$10.89

40.5%

Maker

$848.63

16%

Elrond

$54.74

16%

Polygon

$0.84

12.8%

Stellar

$0.12

10.8%

Source: CoinGecko as of Oct. 6

Biggest Decliners

Price

%7-day return

Celsius Network

$1.15

-21.8%

Chiliz

$0.22

-10%

IOTA

$0.27

-8.9%

Synthetix Network

$2.28

-6.9%

Lido DAO

$1.52

-6.2%

Source: CoinGecko as of Oct. 6

Miners under pressure

It has been a difficult year for bitcoin miners. And there are no signs of a reversal.

Energy prices soared this year, bringing up costs for miners. U.S. electricity prices in August jumped the most since 1981, rising 15.8% year-over-year, according to the US Bureau of Labor Statistics.

Meanwhile, bitcoin prices were down almost 60% year-to-date, leading to disappointing revenue for miners. 

What’s worse, Bitcoin’s hashrate, or the total computational power securing the network, has reached an all-time high. That means that bitcoin’s mining difficulty, which is automatically adjusted about every two weeks based on the hashrate, will increase. According to an estimate from bitcoin mining company Braiins, on Oct. 10, miners will brace for the largest difficulty increase since May 2021.

Facing those challenges, miners on average have seen revenue fall 81% from a peak in October 2021, analysts at Arcane Research wrote in a recent note. Most public miners have seen their gross margins fall to a range of 30%-40% from an 80%-90% area, according to the Arcane analysts.

In September, Compute North, one of the largest operators of data centers for crypto miners, filed for bankruptcy in September. Nasdaq-listed crypto miner Marathon Digital
MARA,
+2.02%

said Thursday it has more than $80 million of exposure in Compute North. Compute North and Marathon Digital didn’t immediately respond to requests for comment.

Why has hashrate kept going up in a bear market? 

There’s “a long lead time” on the purchase of mining machines, according to Sam Doctor, chief strategy officer at BitOoda.

That’s why in 2021, when bitcoin prices kept climbing and the Federal Reserve maintained its easy monetary policy, “a lot of miners levered up,” said Sami Kassab, analyst at Messari. “The public miners wanted to compete with others and started raising capital and equity,” noted Kassab.

In an effort to expand their operations, bitcoin miners ordered machines that are worth billions of dollars in 2021. “A lot of these purchase orders were set last year and because of supply chain issues, they’re just starting to arrive to miners now,” noted Kassab. 

As miners looked to keep operating, but also meet debt obligations, they plugged into the new machines, contributing to the rise in hashpower.

What’s next for miners? 

If bitcoin prices fall below $17,600, the yearly low hit in June, there will be additional pressure facing miners, warned Kassab. 

“You’ll have some of the weaker miners go bankrupt, and they might have to sell their machines to some of the stronger miners,” Kassab said. Even stronger miners will come under pressure, “and most likely, they’ll just have to keep selling bitcoin held on their balance sheet in order to finance their operations,” Kassab said. 

BitOoda’s Doctor thinks bitcoin prices already are at a level where bitcoin miners will be forced into consolidation. Some existing miners may merge, or distressed investors would come in to acquire several companies or take some public companies private. “There are obviously different ways that this can happen,” Doctor said.

In September, crypto billionaire Jihan Wu’s bitcoin mining company Bitdeer has set up a $250 million fund to buy distressed assets from other miners, Bloomberg reported. Bitdeer didn’t immediately respond to a request for comment.

Kim Kardashian’s SEC fine

On Monday, Kim Kardashian agreed to pay $1.26 million to settle charges by the Securities and Exchange Commission that she unlawfully promoted a cryptocurrency called EthereumMax on Instagram.

The SEC claimed the influencer failed to disclose that she was paid $250,000 by the token’s issuers to promote it, although the post contained the hashtag ‘#ad’ at the bottom, MarketWatch’s Chris Matthews reported.

“In the securities laws you have to disclose not only that you’re getting paid but the amount and nature” of the payment, Gensler told CNBC on Monday.

This is not the first time the SEC targeted celebrities who promoted cryptocurrencies. Boxer Floyd Mayweather, musician DJ Khaled and actor Steven Seagal have all been fined, after the SEC said they unlawfully touted crypto securities, noted Gensler.

Crypto companies, funds

Shares of Coinbase Global Inc.
COIN,
+1.29%

gained 1.2% to $73.82 on Thursday, and were up 19.1% over the past five trading sessions. Michael Saylor’s MicroStrategy Inc.
MSTR,
-0.21%

shares dropped 0.4% Thursday to $241.30, while they are up 13.9% over the past five days.

Mining company Riot Blockchain Inc.
RIOT,
-1.24%

shares declined 0.8% to $7.19 Thursday, and they were up 1.6% over the past five days. Shares of Marathon Digital Holdings Inc.
MARA,
+2.02%

advanced 1.9% to $13.08, while up 21.5% over the past five days. Another miner, Ebang International Holdings Inc.
EBON,
-2.58%

saw shares down 4.6% to $0.40 on Thursday, while down 1.7% over the past five days.

Overstock.com Inc.
OSTK,
+0.76%
’s
shares rose 0.7% to $26.35. The shares traded 7.4% higher over the five-session period.

Shares of Block Inc.
SQ,
-0.35%
,
formerly known as Square, slipped 0.4% to $61.92 and were up 10.7% for the week. Tesla Inc.
TSLA,
-1.11%

shares dipped 0.5% to $239.78, down 10.6% over the past five days.

PayPal Holdings Inc.
PYPL,
+0.63%

edged up 0.6% to $94.38, with a 6.4% gain over the five-session stretch. Nvidia Corp.
NVDA,
-0.60%

shares went down 0.2% to $131.83, looking at a 8% gain for the past week.

Advanced Micro Devices Inc.
AMD,
-0.13%

shares rose 0.4% to $68.27 on Thursday, up 6.4% from five trading days ago.

Among crypto funds, ProShares Bitcoin Strategy ETF
BITO,
-0.48%

eased 0.2% to $12.39 Thursday, while its Short Bitcoin Strategy ETF
BITI,
+0.57%

increased 0.4% to $37.02. Valkyrie Bitcoin Strategy ETF
BTF,
-0.77%

skidded 0.5% to $7.73, while VanEck Bitcoin Strategy ETF
XBTF,
-0.40%

cut 0.5% to $19.59.

Grayscale Bitcoin Trust
GBTC,
-0.33%

retreated 0.6% to $11.90.

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