Key Takeaways:
- Few Companies in bitcoin mining industry is struggling.
- An analyst explains the key factors responsible for surviving in the industry.
The Bitcoin mining industry has been the topic of controversy since its inception. Authorities and the public have repeatedly shown concerns related to the impact of the industry on the environment.
However, recently a trend of the “survival of the fittest” has been seen in the crypto market. An analyst at Arcane Research, Jaran Mellerud, has shared his analysis using cash flows and balance sheets to describe the recent happenings in the crypto mining industry.
In a Twitter thread, Jaran shares how the Bitcoin production cost has a significant impact on the operating cash flow of a miner. The crypto market is currently following a bearish trend and cash is the king. It determines when “a miner is forced to turn off machines.” The miners who have the most substantial cash flow will be able to pay expenses related to machine deliveries or debt payments as there has been a recent surge in prices due to inflation.
The crypto mining company, Core Scientific, has the highest operating cash flows at the moment.
The analyst explains that the cash outflows are of similar significance as it determines the fate of the mining company. Many crypto companies have yet to pay hundreds of millions in remaining machine payments in 2022. If we look at cash inflows and outflows, then Marathon has 6.2 times higher remaining machine payments in 2022. There is also a possibility of the debts draining them out of liquidity.
However, interestingly, Jaran has pointed out that though Marathon has “horrible cash flows” as compared to its current operating cash flow, it has a strong balance sheet with lots of cash and short-term debt.
In terms of debt, CleanSpark has the least debt relative to equity and Stronghold has the most debt with a D/E ratio of 4.7. It is considered fairly high for a Bitcoin mining company.
According to Jaran’s analysis, ArgoBlockchain has the most ideal financial condition as it has less amount in debt and strong operating cash flows relative to upcoming machine payments. It has also the second-lowest direct Bitcoin production cost. Marathon is in a weak spot and may soon be forced to liquidate their Bitcoin or sell their machine orders.
Jaran says, “Most of these companies are struggling, and some will get into a liquidity squeeze that will force them to liquidate parts of their assets. In the midst of every crisis lies great opportunity, as the best-capitalized miners can buy the struggling miners’ assets cheaply.”
