Off late, a skyrocketing number of firms are investing in Bitcoin and to verify these transactions, Bitcoin miners come into play. In this bearish phase of crypto winter in market, will these public Bitcoin mining companies be able to survive? To understand the issue better, let us throw some light on what the chilling ‘crypto winter’ actually means.
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Crypto Winter- Is this the Start of Prolonged Bear Market?
In simple words, crypto winter refers to the phase when the prices of cryptocurrencies contracts and remain low for a continuous period. It has proven to be one of the worst nightmares for investors of cryptocurrencies.
Analysts believe that the roots for the latest emerging crypto winter were set in motion earlier in the present year i.e., 2022. Adding to this, the CEO of DBX Digital Ecosystem, Mr. Igor Zakharov remarks that one of major event that affected this fall is the current Russia- Ukrain turmoil that shook the global finance.
He also notes that the high inflation has resulted in increasing interest rates in the United States, which has one of the most important role in the crypto.
Since the month of November of 2021, the cryptocurrency market has dropped close to 60%- a distressing fall from $3 trillion to less than $1 trillion.
This is not the first crypto winter that has settled over the market, this has happened before. The previous crypto winter ranged from January 2018 to December 2020. The term ‘crypto winter’ was first coined in 2018 only, when Bitcoin lost more than 50% of its market value, and other crypto followed the steep fall.
Analysts have predicted that the present crypto winter will last more than a year. If so, how will the public mining companies, survive? But what are these public mining companies? What functions do they perform?
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Public Bitcoin Mining Companies – Who Would Fare Better?
Bitcoin mining is the process of verifying transactions taking place in the Bitcoin digital currency system and the process of circulating and introducing new Bitcoin in the market.
Bitcoin miners use software to keep a check on the transactions. Since Bitcoin is not regulated by any central or governmental authority, so to verify these transactions Bitcoin miners perform complex mathematical algorithms and calculations. As it is an expensive process, it is not very practical for an average consumer to perform this.
Some of the major public Bitcoin mining companies are Marathon, Core scientific, Riot etc. Lately, all these companies have been badly hit by the decline in the price of Bitcoin. The bear market has shaken all these miners. However, some of these have managed to balance the decrease in their interest rates better than others.
To determine which all companies have the best potential to survive the bear market, important aspects such as Energy prices could be looked into.
As electricity is the core basic requirement of Bitcoin mining and is of the highest running cost of any miner. Electric cost and preparedness to face the bearish market have an inverse relationship. The lower the cost of energy, the better prepared they are.
Analysing the power prices of the major public mining companies, Riot emerges as the lowest energy cost-bearing company. It only pays $24 per MWh. It also has the lowest debt-equity ratio standing at 0.1.
An average Mining Setup/Farm consumes huge amount of Energy
However, Marathonyhas a debt-equity ratio sitting at 1.0 denoting high liquidity as compared to Riot.
Adding to the list, Core Scientific wears a market cap of $1.370 billion whereas Marathon stands at second place with a $1.092 billion cap and Riot at third with a $920 Million cap.
When looking at all the scales, Riot seems the best fit to face the bearish market. Its lower power cost and well-maintained balance sheet put Riot in a privileged position where it has to spend less than its counterparts.
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Looking at the above state of major public mining companies, it is very clear that these companies have incurred huge losses due to steep fall in the prices of Bitcoin and other similar cryptocurrencies.
Risks like crypto winter are inherent in crypto investments. The whole analysis narrows down to one point i.e., whether the company is prepared to survive through such bearish phases. So, looking at the current positions of these companies, we have a ray of hope for them to survive this phase.
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