Bear market is the term used to describe a sustained period when the equity markets are down at least 20 percent from their recent peaks. Maintenance call, on the other hand, refers to a call to an investor for additional funds when the market value of securities in the investor’s margin account has fallen to the point that the investor’s equity does not meet an established minimum.
Data compiled by CoinDesk and industry participants shows that private and publicly listed crypto miners are deep in debt as they try to finance construction of their huge North American facilities.
A June 14 investor note from financial solutions company B. Riley Financial revealed that publicly listed miners have borrowed at least $2.16 billion. Ethan Vera, chief economist and CEO of mining firm Luxor Technologies, estimated that public and private miners have borrowed as much as $4 billion.
As the value of the miners’ output plunges with the price of bitcoin (BTC), they need to make difficult decisions including selling off hard-earned coins and equipment to make it through.
Mining hosting firm Blockfusion CEO Alex Martini told CoinDesk that it was painful but necessary to sell millions of dollars worth of BTC reserves so they can pay the firm’s debt. (Related: Major crypto hedge fund Three Arrows Capital files for bankruptcy and fires 25 percent of the workforce as crypto implosion spreads.)
Now, the company has a cash reserve that can last for about six months. However, if they still fail to make the “market turn,” the firm “will be forced to do another round” of liquidations, Martini said.
BTC price is at its lowest level since 2020. Miners’ profit margins are dwindling due to global processing power on the network, or hashrate, near all-time highs and rising energy prices. Data from the Blockchain website reveal that older machine models are becoming unprofitable and turned off. The hashrate decreased by 11 percent between June 12 and June 27.
Their “hodl” strategy (holding BTC rather than selling it) is no longer working and miners are now forced to liquidate their crypto holdings to pay for operating costs and loan installments.
According to Upstream Data President Steve Barbour, BTC mining revenue in dollar-denominated terms per kilowatt-hour (kWh) has more than halved since the start of the year. He added that using newer-generation machines, such as the Antminer S19 Pros and Whatsminer M30S+, can make a big difference because they bring in double the revenue of older models like the Atminer S9.
Companies conceal insolvency as crypto collapse continues
Blockfusion is clearly not the only firm collapsing due to the bear market as crypto mega hedge fund Three Arrows Capital filed a bankruptcy petition in New York last week. Chapter 15 bankruptcy filings stop creditors from seizing a company’s assets in the US. The said company fired 25 percent of its employees.
The collapse of Three Arrows Capital may have commenced a domino effect throughout the crypto lending market as various firms are now racking up significant losses due to their exposure to the fund.
Popular cryptocurrency hedge fund 3AC founder Zhu Su is now reportedly trying to sell the $35 million mansion he bought in December. 3AC focuses on investments in digital assets and is known for bullish views on BTC and highly leveraged bets. It was founded by Su together with Kyle Davies.
3AC creditor Voyager was forced to temporarily suspend all trading, deposits, withdrawals, and loyalty rewards. Another firm affected by 3AC’s actions is the cryptocurrency exchange Blockchain.com which is now seeking its liquidation in the British Virgin Islands court and is cooperating with the investigations into the embattled hedge fund.
BlockFi CEO Zac Prince also announced that they lost about $80 million in dealings with 3AC. While Genesis Trading is reported to be facing hundreds of millions of dollars in losses due to exposure to 3AC and crypto lender Babel Finance of Hong Kong.
“Genesis can confirm that we carefully and thoughtfully mitigated our losses with a large counterparty who failed to meet a margin call to us earlier this week,” the firm’s CEO Michael Moro stated in a social media post.
Early in June, major crypto lender Celsius Network had to pause withdrawals and is allegedly bankrupt. Also, the Terra crypto ecosystem was reported to collapse and this was felt harshly across the industry that had already been stricken by inflation and other macroeconomic forces.
IntoTheBlock head of research Lucas Outumuro wrote in his newsletter that the crypto space is facing its “first large-scale credit crisis.”
“Institutions led by their risky practices thrived during the bull market, but were exposed as prices crashed and took down the rest of the crypto space with them. Ultimately, as an industry, crypto ended up learning the same lessons from traditional finance from its first debt crisis,” he said.
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Watch the below video that talks about the accelerating crypto carnage.
This video is from the Health Ranger Report channel on Brighteon.com.