Mining units at the Cormint Data Systems Bitcoin mining facility while under construction in Fort Stockton, Texas, U.S., on Friday, April 29, 2022. Cryptocurrency miners who have descended on remote parts of Texas to feast on cheap electricity and inexpensive land are finding themselves surrounded by dusty fields with hardly any residential housing. Photographer: Jordan Vonderhaar/Bloomberg via Getty Images
Photo: Jordan Vonderhaar/Bloomberg via Getty Images

Crypto mining goes bust, too

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Friday: crypto mining’s debt problem, the House vs. fintech bros and Paris Hilton HODLs.

Off the chain

We’ve known Paris Hilton has been into Web3 for a while now, after she compared Bored Apes with Jimmy Fallon. Fallon has since gotten rid of his Bored Ape NFT profile picture, but Hilton is holding on to her NFT profile picture on Twitter, where the viral clip was roundly mocked. Not that that’s stopping her: She revealed on “Jimmy Kimmel Live” that she named her two new Pomeranians “Crypto” and “Ether.” Isn’t that a bit like calling your dogs “Fruit” and “Banana”?

— Lindsey Choo (email | twitter)

A miner problem

As bitcoin boomed, crypto mining seemed almost like printing money. But in reality, miners have always had to juggle the cost of hardware, electricity and operations against the tokens their work yielded. Often miners held on to their crypto, betting it would appreciate, or borrowed against it to buy more mining rigs. Now all those bills are coming due: The industry has accumulated as much as $4 billion in debt, according to some estimates.

The crypto boom encouraged excess. “The approach was get rich quick, build it big, build it fast, use leverage. Do it now,” said Andrew Webber, founder and CEO at crypto mining service provider Digital Power Optimization.

  • The crypto crackdown in China briefly caused a glut of mining hardware to flood the market. But bitcoin’s bull run soon soaked up the extra gear as miners opened up shop in places with cheap energy and looser regulation. The U.S. became a center of mining, particularly in Texas and Kentucky.
  • There was also a boom in lending. Startup-financing specialist Pipe offered a “mine now, pay later” service. Many lenders took crypto as collateral for fiat loans that miners spent on equipment or loaned against the equipment itself.

Bitcoin miners are HODLers by nature. Many preferred to hold most of the bitcoin they generated, selling just what they needed to pay employees or other suppliers, because they believed it would go up in value.

  • That speculative math no longer works. Monthly mining revenue has fallen by 63% from its peak in March 2021. Meanwhile, rising energy costs and supply chain problems mean miners’ costs are going up. “Ultimately, there have been a lot more computers made than anybody really needs when bitcoin plunges to $20,000,” Webber said.
  • Canadian miner Bitfarms said last week that it had sold nearly half of its bitcoin — 3,000 BTC — as it “adjusted its HODL strategy.”
  • Compass Mining lost one of its hosting facilities in Maine after Dynamics Mining, the owner of the facility, cut it off, saying Compass had not paid its bills. Compass denied that it owed Dynamics money, but both Compass’ CEO and CFO also resigned last week.

Everything in this crypto market comes back to leverage. While miners are typically borrowing to operate, not speculate, debt is still a key part of the business.

  • The publicly traded company with the highest machine payments due this year out of the eight publicly traded mining companies is Marathon, with $260 million, according to Arcane Research. That’s more than six times its current operating cash flow, by Arcane’s analysis. Marathon does have a strong balance sheet and cash, Arcane notes.
  • Many mining companies bought warehouses’ worth of specialized bitcoin mining machines called ASICs. A number of these operations are not fully built yet — meaning capacity could be coming online when it’s least needed.
  • Stronghold, for example, has a debt-to-equity ratio of 4.7, the highest among the publicly traded mining companies, which is “exceptionally high,” Arcane Research’s Jaran Mellerud notes. Core Scientific is second at 2.1. Stronghold borrowed money last summer at a 10% interest rate, according to its filings.

Are defaults coming? As the price of bitcoin and other cryptocurrencies has fallen, so has the value of mining hardware. This could be forcing some to decide whether it’s worth making payments, Webber said. “I expect there's gonna be some meaningful distress and likely some liquidation or consolidation across the space.” It wouldn’t be the first time a rush for money turned to bust.

A version of this story first appeared on Read it here.

— Tomio Geron (email | twitter)


The competitive edge of digital solutions: For the last 50 years, SAP has worked closely with our customers to solve some of the world’s most intricate problems. We have also seen, and have been a part of, rapid accelerations in technology in response. Across industries, certain paths have emerged to help businesses manage the unexpected challenges over the last few years.

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On the money

On Protocol: The CFPB ended a sandbox arrangement for earned-wage-access provider Payactiv, underlining the CFPB’s increasingly critical view of fintech-friendly agreements that the agency itself said “proved to be ineffective.”

The CFTC charged Mirror Trading International with a $1.7 billion fraud. The agency alleges that the bitcoin pool operator misappropriated bitcoin it accepted, calling it “the largest fraudulent scheme involving bitcoin” in CFTC history. The subtext here: The CFTC wants to remind you it’s no softie on crypto.

Also on Protocol: The SEC denied Grayscale’s spot bitcoin ETF application, and Grayscale is following through with its promises to sue. While the SEC said Grayscale failed to meet investor protection standards, Grayscale said that the agency was “acting arbitrarily.”

FTX is reportedly close to buying BlockFi for $25 million. FTX already has an option to buy a 50% stake in BlockFi in exchange for a revolving credit line, according to The Block, and is reportedly close to buying up the remaining shares. But BlockFi CEO Zac Prince denied the $25 million figure, chalking it up to “market rumors.”

The FBI added Ruja Ignatova to its “Ten Most Wanted Fugitives” list. One of the few people on the list related to non-violent crimes, Ignatova was added for allegedly defrauding investors globally through her company OneCoin. She’s the first person accused of a cryptocurrency-related crime to be added to the list, the FBI told Protocol.

Facebook is experimenting with NFTs. After introducing NFTs on Instagram in May, Meta is testing NFT support on Facebook for select creators, with plans to allow for cross-posting on Instagram and Facebook.

Congress takes on tech bros

Are tech bros the problem? The U.S. House Financial Services Committee convened for an unusually themed hearing Thursday to hear from several witnesses on the obstacles to VC investments in diverse-owned fintechs.

Financial Technology Task Force Chair Stephen Lynch of Massachusetts led the “Combatting Tech Bro Culture” hearing, highlighting that while companies with diverse founders earn 30% higher multiples on invested capital when acquired or going public, only about 2% of VC funds go to women-owned companies, 1% to Black founders and less than 2% to Latinx founders.

One issue that came up was the SEC’s barrier to entry for investing in startups: Only about 14% of U.S. households can reach the income or asset requirements to become accredited investors.

But much of the problem can be attributed to the lack of diversity in the VC landscape. A lack of diversity in professional and social circles contributes to lack of diverse portfolios, as VCs are more likely to invest in founders that are the same gender, race and ethnicity as them.

“Venture capital firms continue to gamble on poor investments such as cryptocurrency companies like Celsius,” Lynch said, while “women and founders of color with well-thought-out, substantive business plans remain in the waiting room.”

— Lindsey Choo

The chart

Not everyone’s cutting back in the face of the crypto crash. Several companies are adding hundreds of new crypto-related jobs. The most surprising employer may be Deloitte, the big consultancy, which is looking for everything from crypto tax analysts to blockchain engineers.


The competitive edge of digital solutions: When companies invest in maintaining their “green ledger” with the same commitment they have to their financial ledgers, they will be able to connect their environmental, social, and financial data holistically so they can steer their business towards sustainability. At the end of the day, what gets measured, gets managed.

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Thanks for reading — enjoy the Fourth of July and we’ll see you Tuesday!

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