“It’s like it’s a “last man standing” situation, says Fred Thiel, CEO of US-based Marathon Digital Holdings. His crypto mining company, one of 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 sector has been hit by a fall in bitcoin prices, combined with a spike in energy costs and an increase in mining complexity – reflecting the amount of processing power devoted to the bitcoin network, which dictates the share of coins miners can win.

At the peak of the boom in 2021, the profitability of the mining industry has risen to 90 percent, Thiel says. But now they “completely fell apart.” If the price of bitcoin doesn’t rise, he says, there will be “a lot more pain” and firms that are marginally profitable today will be “very underwater.”

As they struggle to cut costs, miners are playing a high-stakes game. In the spring of 2024, halving, a mechanism built into the Bitcoin system that periodically halves the number of coins awarded, will reduce mining profits. The aim of the miners is to make sure they are in a strong enough financial position to survive the drop in profits longer than anyone else; as miners lose ground and drop out of the network, the share of coins won by the rest will increase.

“Any miners that are struggling right now will not be able to survive the halving,” says Jeff Berkey, VP of business development at Foundry, which operates its own mining facility, large-scale mining pool and mining hardware marketplace. The dynamic will cause a stir among the miners to get their houses in order, he explains.

Miners will seek to extract extra profit margins wherever they can, whether by deploying better equipment and cooling techniques, developing software to closely monitor machine performance, moving to areas with cheaper electricity, or renegotiating the terms of their loans.

Others, like Geosyn Mining, aim for vertical integration – all the way to powering facilities. The company, according to CEO Caleb Ward, wants to build its own solar farm to power its machines, thus eliminating large costs. “As an industry, we need to be more careful about how we protect against risk,” he says. “It’s not just about shooting for the moon.”

Meanwhile, miners whose financial difficulties prevent them from setting up their operations are playing a dangerous waiting game, betting on an increase in the price of Bitcoin that may never come.

“The beauty of halving cycles is that the industry [is forced] to become more efficient – many of the weaker players will have to leave the business,” says Jeff Lucas, CFO of mining company Bitfarms, which has been working to restructure its finances during the economic downturn. “The devil is in the details.”

Already on the back foot, mining companies are beginning to fold. Compute North, which owned several large-scale mining facilities, filed for bankruptcy in September, and Core Scientific, a public miner, did the same in December. Others have to maneuver. Argo Blockchain, also a public company, was forced to sell mining equipment and its state-of-the-art mining center, while Stronghold Digital Mining agreed to a debt repayment holiday. Neither company responded to requests for an interview.

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