Efforts to keep Bitcoin mining operations afloat could push the BTC spot price even lower.
The Bitcoin part
The network, controlled by publicly traded mining companies, could grow up to 40% by mid-2023, according to a new report by Hashrate Index. But this could bring more stress to an already bearish BTC market.
The hashrate of public Bitcoin miners increased by 295% in one year
The outlook came after evaluating the hashrate performance of Core Scientific, Marathon Digital Holdings, Riot Blockchain, and other public miners over the past 12 months. Notably, these companies increased their hashing capacity from 15 hashes per second a year ago to 58 EH/s in October 2022, an increase of 295%.
Public vs private Bitcoin mining hash rate performance. Source: Hash rate index
In comparison, the hash rate of private miners increased from 134 EH/s to 177 EH/s in the same period, a growth of 58%.
“The driving force behind the rapid capacity increase of public miners is that they can access cheap capital during the 2021 bull market,” explained Jaran Mellerud, Bitcoin mining analyst and author of the Hashrate Index report.
He added that public miners used the money to buy massive mining equipment. As a result, these companies have tens of thousands of Bitcoin mining rigs in storage waiting to be connected while they wait for more rigs to be delivered.
Core Scientific, the largest public #bitcoin miner, has a 5% share of the total hashrate. Marathon and Riot follow closely behind, each controlling more than 2% of Bitcoin’s hashrate.
In total, there are seven public Bitcoin miners with a hashrate share of more than 1%. pic.twitter.com/ZnwsFjvQcy
— Jaran Mellerud (@JMellerud) October 24, 2022
Therefore, the Bitcoin hash rate generated by public miners can continue to increase significantly as more and more machines come online.
On the other hand, private miners could not come up with the capital to buy mining. Therefore, the growth of their hash rate contributions may still be slower in comparison, Mellerud argued.
Stressed miners could increase bitcoin liquidation risks
In 2022, Bitcoin miners, in general, are affected by decreasing BTC prices, rising energy costs, regulation and increased competition. Public mining companies have been rapidly raising capital by issuing additional shares or taking on more debt, resulting in massive declines in their stock prices.
For example, the Valkyrie Bitcoin Miners ETF, which tracks several large public miners, has fallen 75% since its launch in February.
Valkyrie Bitcoin Miners ETF share price history in 2019 Source: TradingView
Another unpopular alternative to raise capital is the sale of Bitcoin at lower prices. For example, Core Scientific has shed 85% of its bitcoin holdings since the end of March, according to its August update.
Related: Kazakhstan Among Top 3 Bitcoin Mining Destinations After US and China
During the same period, the price of BTC dropped by 60% to around $19,500 per coin. In other words, a rising hash rate can increase the need for miners to sell Bitcoin for cash to keep their operations going.
“It’s an absolute bloodbath,” wrote Marty Bent, founder of bitcoin media company TFTC, adding:
“Bitcoin miners are in a world of pain right now and the likely result is a wave of failures in the coming months as the hash rate continues to rise, the price remains flat, and energy prices continue to rise.”.
BTC/USD Price in Dollars (USD) Source: TradingView
Meanwhile, Mellerud said many public miners are unable to handle a drop in cash flows, resulting in bankruptcies. As a result, their mining farms could be sold to private miners.
Conversely, decisions by public miners to increase their capacity may pay off if the price of Bitcoin makes a decisive bullish reversal. As Cointelegraph reported, signs of a potential market bottom have already emerged, which will ease miners struggling with current prices.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.