Bitcoin (BTC) mining is the spine of the BTC ecosystem and miners’ returns additionally present perception into BTC’s worth actions and the well being of the broader crypto sector.

It’s well-documented that Bitcoin miners are struggling within the present bear market. Blockstream, a number one Bitcoin miner recently raised funds at a 70% discount.

Present mining exercise shares similarities to historic BTC bear markets with a number of caveats.

Let’s discover what this implies for the present Bitcoin cycle.

Evaluation reveals that based mostly on earlier cycles the bear market might proceed

Bitcoin mining profitability could be measured by taking the miner’s income per kilowatt hour (kWh). Based on Jaran Mellerud, a Bitcoin analyst for Hashrate Index, a BTC mining bear market has a sustained interval of income per kWh of lower than $0.25. Underneath his assumption, he calculates utilizing essentially the most environment friendly Bitcoin mining machine available on the market.

The 2018 bear market lasted practically a yr, sending kWh to a backside of $0.12. Following the downtrend, a brief bull market commenced till the 2019 bear market started.

Based on Mellerud, the 2019 bear market produced all-time low income per kWh of $0.083 and lasted 463 days, whereas Bitcoin worth dropped to $5,000.

The newest mining bear market began in April 2022 in line with Mellerud’s evaluation of income per kWh. As of Dec. 8, the present bear market has lasted for 225 days with a minimal income of $0.108 per kWh. The quantity is increased than in earlier bear cycles as a consequence of excessive power costs.

Bitcoin mining historic income per kWh. Supply: Hashrate Index

Evaluating the present bear mining cycles, a minimal of 138 bear market days might proceed earlier than the market turns. The distinction between this era and previous cycles is that beforehand, miners have been primarily self-funded whereas now, there are a lot of miners that funded their speedy progress with debt.

Public mining shares really feel the ache

At its peak, Bitcoin mining shares reached a cumulative worth of over $17 billion within the 2021 bull market. The bull market elevated investor curiosity and spurred progress in BTC mining shares skyrocketed from $2 billion in Nov. 2020.

After reaching the bull market peak in 2021, crypto mining shares are below immense stress, with many falling by 90%.

Bitcoin mining shares whole market cap. Supply: Hashrate Index

The immense quantity of debt taken on by public mining corporations taken at Bitcoin’s all-time excessive is creating a large debt-to-equity ratio.

An excellent instance of how the bear market is growing miners’ reliance on debt, is to take a look at Core Scientific. Earlier than the mining bear market in April, Core Scientific had a mere 0.6 debt-to-equity ratio. For the reason that begin of the bear market, that quantity has grown to over 24.2 debt-to-equity.

Core Scientific debt-to-equity. Supply: Hashrate Index

With the Bitcoin mining bear market anticipated to proceed based mostly on previous historic BTC tendencies, extra public miners will face fairness squeezes. As miner debt continues to develop, buyers might get spooked, creating much more depressed costs within the inventory market.