Crypto World Crypto Miner Moved Over $300 Million Of

Bitcoin mining is the process by which new bitcoins are entered into circulation. It is also the way the network confirms new transactions and is a critical component of the blockchain ledger's maintenance and development. "Mining" is performed using sophisticated hardware that solves an extremely complex computational math problem. The first computer to find the solution to the problem receives the next block of bitcoins and the process begins again.

Cryptocurrency mining is painstaking, costly, and only sporadically rewarding. Nonetheless, mining has a magnetic appeal for many investors who are interested in cryptocurrency because of the fact that miners receive rewards for their work with crypto tokens. This may be because entrepreneurial types see mining as pennies from heaven, like California gold prospectors in 1849. And if you are technologically inclined, why not do it?

The bitcoin reward that miners receive is an incentive that motivates people to assist in the primary purpose of mining: to legitimize and monitor Bitcoin transactions, ensuring their validity. Because many users all over the world share these responsibilities, Bitcoin is a "decentralized" cryptocurrency, or one that does not rely on any central authority like a central bank or government to oversee its regulation.

However, before you invest the time and equipment, read this explainer to see whether mining is really for you.

Why Bitcoin Needs Miners

blockchain "mining" is a metaphor for the computational work that nodes in the network undertake in hopes of earning new tokens. In reality, miners are essentially getting paid for their work as auditors. They are doing the work of verifying the legitimacy of Bitcoin transactions. This convention is meant to keep Bitcoin users honest and was conceived by Bitcoin's founder, Satoshi Nakamoto.

 By verifying transactions, miners are helping to prevent the "double-spending problem." 

Double spending is a scenario in which a Bitcoin owner illicitly spends the same bitcoin twice. With physical currency, this isn't an issue: When you hand someone a $20 bill to buy a bottle of vodka, you no longer have it, so there's no danger you could use that same $20 bill to buy lotto tickets next door. Though counterfeit cash is possible, it is not exactly the same as literally spending the same dollar twice. With digital currency, however, as the Investopedia dictionary explains, "there is a risk that the holder could make a copy of the digital token and send it to a merchant or another party while retaining the original."

Let's say you had one legitimate $20 bill and one counterfeit of that same $20. If you were to try to spend both the real bill and the fake one, someone who took the trouble of looking at both of the bills' serial numbers would see that they were the same number, and thus one of them had to be false. What a blockchain miner does is analogous to that—they check transactions to make sure that users have not illegitimately tried to spend the same bitcoin twice. This isn't a perfect analogy—we'll explain in more detail below.

New data from blockchain analytics firm crypto Quant shows that miners are rapidly exiting their bitcoin positions.

14,000 bitcoin, worth more than $300 million at its current price, was transferred out of wallets belonging to miners in a single 24-hour period at the end of last week — and in the last few weeks, miners have offloaded the largest amount of bitcoin since Jan. 2021. The phenomenon is called “miner capitulation,” and it typically indicates that miners are preparing to sell their previously mined coins in order to cover ongoing mining expenses.

Bitcoin is currently trading around $21,600, up about 3% in the last 24 hours. Still, the wider crypto market has been in a slump for months, with bitcoin down nearly 70% from its all-time high of around $69,000 in Nov. 2021.

Meanwhile, inflation is on a tear, and the cost of energy is hitting record highs as the war between Russia and Ukraine rages on.

Lower bitcoin prices and higher energy costs are compressing profit margins for miners, which is part of why some are selling bitcoin at current prices to try to contain exposure to continued volatility in the sector and mitigate against further risk to their bottom line.

“Given rising electricity costs, and bitcoin’s steep price decline, the cost of mining a bitcoin may be higher than its price for some miners,” Citi analyst Joseph Ayoub wrote in a note on July 5.

“With high-profile reports of resignations from mining companies, as well as miners that have used their equipment as collateral to borrow money, the Bitcoin mining industry could be under growing pressure,” the note continued

Our costs, expenses, and liabilities are in dollars

Core Scientific, which is one of the largest publicly traded crypto mining companies in the U.S., sold nearly all its bitcoin in June. CEO Mike Levitt tells CNBC that just like any other business, bitcoin miners need to pay their bills.

“We mine and earn or produce bitcoin, but our costs, expenses, and liabilities are in dollars,” said Levitt.

It’s still profitable to mine bitcoin, Levitt says, with around 50% margins across the industry. That’s down from 80% margins at its peak.

Last month, Core sold 7,202 bitcoin at an average price of $23,000. Levitt tells CNBC they invested the proceeds of approximately $167 million primarily into growth-oriented activities, including new ASIC servers and additional data center capacity for their self-mining and colocation businesses.

But they also deployed some of that capital to repay debt and to help settle five years of employee stock grants.

Long-term, Levitt is optimistic because there’s tremendous positive operating leverage in the business. Over certain levels, every dollar increase in the price of Bitcoin is 100% operating income to bitcoin miners.

“We would all be cheering loudly if bitcoin were to get back to $35,000, $40,000. There is no doubt about that,” he said.

But productivity per unit of electricity also matters, and when prices are low, large-scale miners like Core Scientific tend to face less competition from hobbyists and small operations.

“As prices fall, the global hashrate — or the competition for the production of bitcoin — decreases, as less efficient miners come off the network,” explained Levitt.

The hashrate is a term used to describe the computing power of all miners in the bitcoin network, and it is down 15% in the last month. That is ultimately a good thing for the large-scale miners who can afford to weather the downturns.

As less efficient miners come off the network and global hashrate declines, machines that continue to mine Bitcoin get more productive.

“And thus, the cost of energy, if you will, per bitcoin produced, goes down,” said Levitt.

Bitcoin Miners With Higher Valuations

Not all bitcoin miners have been undervalued in these times. Some have received high valuations even through the bear market. The largest bitcoin minger according to valuation is Marathon Digital which has received a 17.2 EV/EBITDA score. This means that the company is operating at a normal valuation and has more chances of maintaining a more stable value over time.

BTC recovers above $21,000 | Source: BTC USD on TradingView.com

Others have also received a high valuation but have not crossed the 10 mark yet. Core Scientific has received the second-highest score after Marathon Digital. The public miner is currently sitting at a score of 7.5 on the EV/EBITDA scale, making it slightly undervalued.

Next is Riot Bitcoin, with a score of 6.5, with Argo following right behind with a score of 5.1. However, one thing that separates these two has been the quality of the companies, making a play on such undervalued companies quite beneficial over time.