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Crypto lending unit of Genesis files for U.S. bankruptcy

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Jan 20 (Reuters) – The lending unit of crypto firm Genesis filed for U.S. bankruptcy protection on Thursday, owing creditors at least $3.4 billion, after being toppled by a market rout along with the likes of exchange FTX and lender BlockFi.

Genesis Global Capital, one of the largest crypto lenders, froze customer redemptions on Nov. 16 after the collapse of major exchange FTX sent shockwaves through the crypto asset industry, fuelling concern that other companies could implode.

Genesis is owned by venture capital firm Digital Currency Group (DCG).

Its bankruptcy filing is the latest in a string of crypto failures triggered by a market collapse that wiped about $1.3 trillion off the value of crypto tokens last year. While bitcoin has rallied so far in 2023, the impact of the market collapse has continued to hit companies in the highly interconnected sector.

The bankruptcy “doesn’t come as a shock to the markets,” said Ivan Kachkovski, currency and crypto strategist at UBS. “It remains to be seen if the chain effect would go on.”

“However, given that the funds have already been frozen for over two months and no other large crypto company reported an associated weakness, it’s likely that the contagion would be limited.”

Genesis’ lending unit said it had both assets and liabilities in the range of $1 billion to $10 billion, and estimated it had more than 100,000 creditors in its filing with the U.S. Bankruptcy Court for the Southern District of New York.

Genesis Global Holdco, the parent group of Genesis Global Capital, also filed for bankruptcy protection, along with another lending unit Genesis Asia Pacific.

Genesis Global Holdco said in a statement that it would contemplate a potential sale, or a stock-related transaction, to pay creditors, and that it had $150 million in cash to support the restructuring.

It added that Genesis’ derivatives and spot trading, broker dealer and custody businesses were not part of the bankruptcy process, and would continue their client trading operations.

CREDITORS’ CLAIMS

Genesis owes its 50 biggest creditors $3.4 billion, according to Reuters’ calculations from the bankruptcy filing. Its largest creditor is crypto exchange Gemini, which it owes $765.9 million. Gemini was founded by the identical twin cryptocurrency pioneers Cameron and Tyler Winklevoss.

Genesis was already locked in a dispute with Gemini over a crypto lending product called Earn that the two firms jointly offered to Gemini customers.

The Winklevoss twins have said Genesis owed more than $900 million to some 340,000 Earn investors. On Jan. 10, Cameron Winklevoss called for the removal of Barry Silbert as the chief executive of Digital Currency Group.

Representations of cryptocurrencies are seen in front of displayed decreasing stock graph in this illustration taken November 10, 2022. REUTERS/Dado Ruvic/Illustration

About an hour after the bankruptcy filing, Cameron Winklevoss tweeted that Silbert and Digital Currency Group continued to deny creditors a fair deal.

“Unless Barry (Silbert) and DCG come to their senses and make a fair offer to creditors, we will be filing a lawsuit against Barry and DCG imminently,” Winklevoss said in his tweet thread.

DCG did not immediately respond to a Reuters request for comment on the tweets.

Amsterdam-based crypto exchange Bitvavo, said in December it was trying to recover 280 million euros ($302.93 million) which it had lent to Genesis.

Bitvavo said in a blog post on Friday that talks on the repayment “have not yet led to an overall agreement that works for all parties concerned” and that it would continue to negotiate.

The bankruptcy filing “brings the process of negotiations to calmer waters,” Bitvavo said.

LENDING BUSINESS

Genesis brokered digital assets for financial institutions such as hedge funds and asset managers and had almost $3 billion in total active loans at the end of the third quarter, down from $11.1 billion a year earlier, according to its website.

Last year, Genesis extended $130.6 billion in crypto loans and traded $116.5 billion in assets, according to its website.

Its two biggest borrowers were Three Arrows Capital, a Singapore-based crypto hedge fund, and Alameda Research, a trading company closely affiliated with FTX, a source told Reuters. Both are in bankruptcy proceedings.

Three Arrows debt to Genesis was assumed by its parent company Digital Currency Group (DCG), which then filed a claim against Three Arrows. DCG’s portfolio companies also include crypto asset manager Grayscale and news service CoinDesk.

Crypto lenders, which acted as the de facto banks, boomed during the pandemic. But unlike traditional banks, they are not required to hold capital cushions. Earlier this year, a shortfall of collateral forced some lenders – and their customers – to shoulder large losses.

($1 = 0.9243 euros)

Reporting by Tom Hals in Wilmington, Delaware, Akanksha Khushi, and Elizabeth Howcroft in London; Editing by Lananh Nguyen, Clarence Fernandez, Kim Coghill, Ira Iosebashvili and Sharon Singleton

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Crypto lender Genesis preparing to file for bankruptcy, Bloomberg News reports

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Jan 18 (Reuters) – Cryptocurrency lender Genesis Global Capital is planning to file for bankruptcy as soon as this week, Bloomberg News reported on Wednesday, citing people with knowledge of the situation.

A bankruptcy filing has been expected for weeks, after the company froze customer redemptions on Nov. 16 following the downfall of major cryptocurrency exchange FTX.

The collapse of FTX in November has claimed several victims including crypto lender BlockFi and Core Scientific Inc , one of the biggest publicly traded crypto mining companies in the United States, both of which filed for bankruptcy protection in the following months.

Genesis, its parent Digital Currency Group and creditors have exchanged several proposals, but have so far failed to come to an agreement, the Bloomberg report said, adding that Kirkland & Ellis and Proskauer Rose have been advising groups of creditors.

Genesis did not immediately respond to a Reuters request for comment.

Genesis is also locked in a dispute with Gemini, founded by the identical twin crypto pioneers Cameron and Tyler Winklevoss.

Gemini offered a crypto lending product called Earn in partnership with Genesis, and now says Genesis owes it $900 million in connection with that product.

The U.S. Securities and Exchange Commission last week said it had charged Genesis and Gemini with illegally selling securities to hundreds of thousands of investors through their crypto lending program.

Reporting by Niket Nishant and Mehnaz Yasmin in Bengaluru; Editing by Sriraj Kalluvila

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Core Scientific files for bankruptcy as crypto winter bites

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Dec 21 (Reuters) – Core Scientific Inc (CORZ.O), one of the biggest publicly traded cryptocurrency mining companies in the United States, said on Wednesday it filed for Chapter 11 bankruptcy protection, the latest in a string of failures to hit the sector.

Austin, Texas-based Core Scientific attributed its bankruptcy to slumping bitcoin prices, rising energy costs for bitcoin mining and a $7 million unpaid debt from U.S. crypto lender Celsius Network, one of its biggest customers.

Core Scientific said in court filings that it had suffered a net loss of $434.8 million for the three months ending September 30, 2022, and had just $4 million in liquidity at the time of its bankruptcy filing.

The company engaged restructuring advisers in October and has been negotiating with creditors about a potential bankruptcy filing since that time.

More than a trillion dollars in value has been wiped out from the crypto sector this year with rising interest rates exacerbating worries of an economic downturn. The crash has eliminated key industry players such as crypto hedge fund Three Arrows Capital and Celsius.

The biggest blow came after major crypto exchange FTX filed for bankruptcy protection last month. Its swift fall has sparked tough regulatory scrutiny of how crypto firms hold funds and conduct business operations.

After rapid growth in 2020 and 2021, bitcoin – the most popular digital currency by far – is down more than 60% this year, pressuring the crypto mining sector.

Processing bitcoin transactions and “mining” new tokens is done by powerful computers, hooked up to a global network, that compete against others to solve complex mathematical puzzles.

Bitcoins are seen in this illustration picture taken September 27, 2017. REUTERS/Dado Ruvic

But the business has become less profitable as the price of bitcoin has slumped, while energy costs have soared.

Celsius, which filed for Chapter 11 bankruptcy protection in July, owns several bitcoin mining rigs hosted at Core Scientific’s facilities. Celsius’s bankruptcy has prevented Core Scientific from collecting on higher energy bills that the company is racking up at a rate of $900,000 per month, according to court filings.

Core Scientific said it would not liquidate, and intends to pursue a restructuring backed by creditors who hold over 50% of the company’s convertible notes.

Those creditors have agreed to provide up to $56 million in debtor-in-possession financing, and convertible noteholders would ultimately end up with 97% of Core Scientific’s equity shares if the restructuring is approved in court.

The company’s shares have lost roughly 98% of their value so far in 2022, shrinking its market cap to about $78 million.

The stock fell another 50% in trading on Wednesday. Shares of other crypto miners including Riot Blockchain (RIOT.O), Marathon Digital (MARA.O) and Hut 8 Mining Corp have all shed more than 80% this year.

In its bankruptcy petition, Core Scientific said it has $1 billion to $10 billion in assets and liabilities, and between 1,000 and 5,000 creditors.

Core Scientific went public in 2021 through a merger with a blank-check company in a deal that at the time valued the miner at $4.3 billion.

Core Scientific’s first bankruptcy court hearing has been set for Dec. 21 at 0915 CT (1515 GMT).

Reporting by Siddharth Jindal, Maria Ponnezhath, Akriti Sharma and Manya Saini in Bengaluru, and Dietrich Knauth in New York and Hannah Lang in Washington; editing by Uttaresh.V, Maju Samuel, Alexia Garamfalvi and Deepa Babington

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Sam Bankman-Fried says he ‘didn’t ever try to commit fraud’

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NEW YORK, Nov 30 (Reuters) – Sam Bankman-Fried, the founder and former CEO of now-bankrupt crypto exchange FTX, attempted to distance himself from suggestions of fraud in his first public appearance since his company’s collapse stunned investors and left creditors facing losses totaling billions of dollars.

Speaking via video link at the New York Times’ Dealbook Summit with Andrew Ross Sorkin on Wednesday, Bankman-Fried said he did not knowingly commingle customer funds on FTX with funds at his proprietary trading firm, Alameda Research.

“I didn’t ever try to commit fraud,” Bankman-Fried said in the hour-long interview, adding that he doesn’t personally think he has any criminal liability.

He also denied knowing the full scale of Alameda’s position on FTX, claiming that it caught him by surprise.

The liquidity crunch at FTX came after Bankman-Fried secretly moved $10 billion of FTX customer funds to Alameda Research, Reuters reported, citing two people familiar with the matter. At least $1 billion in customer funds had vanished, the people said.

Bankman-Fried told Reuters in November the company did not “secretly transfer” but rather misread its “confusing internal labeling.”

FTX filed for bankruptcy and Bankman-Fried stepped down as chief executive on Nov. 11, after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal.

“That week, so much happened,” he said.

Bankman-Fried said he was speaking from the Bahamas and that the interview was against the advice of his lawyers. He was seen in the video link talking from a room, dressed in a black T-shirt and occasionally drinking from a mug.

FTX faces a flurry of investigations. The U.S. Attorney’s Office in Manhattan in mid-November began investigating how FTX handled customer funds, a source with knowledge of the probe told Reuters. The Securities and Exchange Commission and Commodity Futures Trading Commission have also opened probes.

When asked if he could come to the United States, Bankman-Fried replied that to his knowledge he could, and that he wouldn’t be surprised if he traveled to Washington for upcoming congressional hearings on the company’s collapse.

The implosion of FTX marked a stunning fall from grace for the 30-year-old entrepreneur who rode a cryptocurrency boom to a net worth that Forbes pegged a year ago at $26.5 billion. After launching FTX in 2019, he became an influential political donor and pledged to donate most of his earnings to charities.

He said Wednesday that he now has “close to nothing” left and is down to one working credit card with “maybe $100,000 in that bank account.”

Since FTX filed for bankruptcy, Bankman-Fried has distanced himself from the image he projected in media interviews and on Capitol Hill, telling a Vox reporter his advocacy for a crypto regulatory framework was “just PR” and his discussions on ethics within the industry were at least partly a front.

Bankman-Fried said he was “confused” as to why FTX’s U.S. entity, which was included in the bankruptcy filing, is not processing customer withdrawals. Redemptions are currently paused for both U.S. and international customers.

“To my knowledge all American customers and all American regulated businesses here are, I think at least in terms of client assets, are okay,” he said, adding that derivatives contracts at one of its U.S. subsidiaries were “fully collateralized.”

WHAT HAPPENED

Bankman-Fried said that Alameda had built up a substantial position on FTX and that as digital asset prices plummeted this year, Alameda became increasingly more levered to the point of no return earlier this month.

“Realistically speaking, (there was) no ability for FTX to be able to liquidate that position and generate everything that was owed,” he said.

He added that he “wasn’t trying to commingle funds,” but said that when FTX didn’t have a bank account, some customers wired money to Alameda and were credited on FTX, which likely led to discrepancies.

Bankman-Fried stepped down as CEO of Alameda in October 2021, four years after founding the company, and ceded the role to Caroline Ellison and Sam Trabucco, who acted as co-CEOs until Trabucco departed the firm in August.

For his part, Bankman-Fried said he regretted focusing on the bigger picture at FTX at the expense of risk management, which he said he paid less attention to over “the last year or two.”

His companies “completely failed” on risk management, he said.

“There was no person who was chiefly in charge of positional risk of customers on FTX, and that feels pretty embarrassing in retrospect.”

Reporting by Carolina Mandl and Lananh Nguyen in New York and Manya Saini in Bengaluru; writing by Hannah Lang in Washington; editing by Megan Davies, Deepa Babington and Sam Holmes

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Crypto lender BlockFi files for bankruptcy, cites FTX exposure

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  • Filing follows weeks after FTX collapse
  • FTX listed as BlockFi’s No.2 creditor
  • Bitcoin down over 70% from 2021 peak

Nov 28 (Reuters) – Cryptocurrency lender BlockFi has filed for Chapter 11 bankruptcy protection, it said on Monday, the latest crypto casualty after the firm was hurt by exposure to the spectacular collapse of the FTX exchange earlier this month.

The filing in a New Jersey court comes as crypto prices have plummeted. The price of bitcoin , the most popular digital currency by far, is down more than 70% from a 2021 peak.

“BlockFi’s Chapter 11 restructuring underscores significant asset contagion risks associated with the crypto ecosystem,” said Monsur Hussain, senior director at Fitch Ratings.

New Jersey-based BlockFi, founded by fintech executive-turned-crypto entrepreneur Zac Prince, said in a bankruptcy filing that its substantial exposure to FTX created a liquidity crisis. FTX, founded by Sam Bankman-Fried, filed for protection in the United States earlier in November after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal.

“Although the debtors’ exposure to FTX is a major cause of this bankruptcy filing, the debtors do not face the myriad issues apparently facing FTX,” said the first day bankruptcty filing by Mark Renzi, managing director at Berkeley Research Group, the proposed financial advisor for BlockFi. “Quite the opposite.”

BlockFi said the liquidity crisis was due to its exposure to FTX via loans to Alameda, a crypto trading firm affiliated with FTX, as well as cryptocurrencies held on FTX’s platform that became trapped there. BlockFi listed its assets and liabilities as being between $1 billion and $10 billion.

Renzi said that BlockFi had sold a portion of its crypto assets earlier in November to fund its bankruptcy. Those sales raised $238.6 million in cash, and BlockFi now has $256.5 million in cash on hand.

In a court filing on Monday, BlockFi listed FTX as its second-largest creditor, with $275 million owed on a loan extended earlier this year. It said it owes money to more than 100,000 creditors. The company also said in a separate filing it plans to lay off two-thirds of its 292 employees.

Under a deal signed with FTX in July BlockFi was to receive a $400 million revolving credit facility while FTX got an option to buy it for up to $240 million.

BlockFi’s bankruptcy filing also comes after two of BlockFi’s largest competitors, Celsius Network and Voyager Digital , filed for bankruptcy in July citing extreme market conditions that had resulted in losses at both companies.

Crypto lenders, the de facto banks of the crypto world, boomed during the pandemic, attracting retail customers with double-digit rates in return for their cryptocurrency deposits.

Crypto lenders are not required to hold capital or liquidity buffers like traditional lenders and some found themselves exposed when a shortage of collateral forced them – and their customers – to shoulder large losses.

BlockFi’s first bankruptcy hearing is scheduled to take place on Tuesday FTX did not respond to a request for comment.

CREDITOR LIST

BlockFi’s largest creditor is Ankura Trust, a company that represents creditors in stressed situations, and is owed $729 million. Valar Ventures, a Peter Thiel-linked venture capital fund, owns 19% of BlockFi equity shares.

BlockFi also listed the U.S. Securities and Exchange Commission as one of its largest creditors, with a $30 million claim. In February, a subsidiary of BlockFi agreed to pay $100 million to the SEC and 32 states to settle charges in connection with a retail crypto lending product the company offered to nearly 600,000 investors.

Bain Capital Ventures and Tiger Global co-led BlockFi’s March 2021 funding round, according to a press release issued by BlockFi at the time. Both firms did not immediately respond to a request for comment.

In a blog post, BlockFi said its Chapter 11 cases will enable the company to stabilize its business and maximize value for all stakeholders.

“Acting in the best interest of our clients is our top priority and continues to guide our path forward,” BlockFi said.

In its bankruptcy filing, BlockFi said it had hired Kirkland & Ellis and Haynes & Boone as bankruptcy counsel.

BlockFi had earlier paused withdrawals from its platform.

In a filing, Renzi said that Blockfi intends to seek authority to honor client withdrawal requests from its customer wallet accounts, in which crypto assets are held in custody. However, the company did not disclose its plans for how it might treat withdrawal requests from its other products, including its interest-bearing accounts.

“BlockFi clients may ultimately recover a substantial portion of their investments,” Renzi said in the filing.

ORIGINS

BlockFi was founded in 2017 by Prince, who is currently the company’s chief executive officer, and Flori Marquez. Though headquartered in Jersey City, BlockFi also has offices in New York, Singapore, Poland and Argentina, according to its website.

In July, Prince had tweeted that “it’s time to stop putting

BlockFi in the same bucket / sentence as Voyager and Celsius.”

“Two months ago we looked the ‘same.’ They shut down and have impending losses for their clients,” he said.

According to a profile of BlockFi published earlier this year by Inc, Prince was raised in San Antonio, Texas, and financed his college education at the University of Oklahoma and Texas State University with winnings from online poker tournaments. Before starting BlockFi with Marquez, he held jobs at Orchard Platform, a broker dealer, and at Zibby, a lease-to-own lender now called Katapult (KPLT.O).

Marquez previously worked at Bond Street, a small business lending outfit that was folded in to Goldman Sachs (GS.N) in 2017, according to Inc.

Reporting by Hannah Lang in Washington, Niket Nishant and Manya Saini in Bengaluru and Elizabeth Howcroft in London
Additional reporting by Dietrich Knauth, Editing by Megan Davies, Conor Humphries, Matthew Lewis and Anna Driver

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Exclusive: Bankman-Fried’s FTX, parents bought Bahamas property worth $121 million

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  • FTX unit bought 7 condos in high-end resort for “key personnel”
  • Bankman-Fried’s parents named owners of $16.4 mln vacation home
  • Bankman and Fried tell Reuters: Seeking to return deed to FTX

NEW PROVIDENCE, Bahamas, Nov 22 (Reuters) – Sam Bankman-Fried’s FTX, his parents and senior executives of the failed cryptocurrency exchange bought at least 19 properties worth nearly $121 million in the Bahamas over the past two years, official property records show.

Most of FTX’s purchases were luxury beachfront homes, including seven condominiums in an expensive resort community called Albany, costing almost $72 million. The deeds show these properties, bought by a unit of FTX, were to be used as “residence for key personnel” of the company. Reuters could not determine who lived in the apartments.

The documents for another home with beach access in Old Fort Bay — a gated community that was once home to a British colonial fort built in the 1700s to protect against pirates — show Bankman-Fried’s parents, Stanford University law professors Joseph Bankman and Barbara Fried, as signatories. The property, one of the documents dated June 15 said, is for use as a “vacation home.”

When asked by Reuters why the couple decided to buy a vacation home in the Bahamas and how it was paid for — whether in cash, with a mortgage or by a third party such as FTX — a spokesman for the professors said only that Bankman and Fried had been trying to return the property to FTX.

“Since before the bankruptcy proceedings, Mr. Bankman and Ms. Fried have been seeking to return the deed to the company and are awaiting further instructions,” the spokesperson said, declining to elaborate.

While it is known that FTX and its employees bought real estate in the Bahamas, where it established its headquarters in September last year, the property records seen by Reuters show for the first time the scale of their buying spree and the intended use of some of the real estate.

FTX, which filed for bankruptcy earlier this month after a rush of customer withdrawals, did not respond to a request for comment. Bankman-Fried did not respond to requests for comment.

Bankman-Fried has told Reuters he lived in a house with nine other colleagues. For his employees, he said FTX provided free meals and an “in-house Uber-like” service around the island.

The collapse of FTX, one of the world’s largest crypto currency exchanges, has left an estimated 1 million creditors facing losses totalling billions of dollars. Reuters has reported Bankman-Fried secretly used $10 billion in customer funds to prop up his trading business, and that at least $1 billion of those deposits had vanished.

In a U.S. court filing with the District of Delaware bankruptcy court earlier this month, John Ray, FTX’s new chief executive, said he understood that corporate funds of the FTX Group were used to “purchase homes and other personal items for employees and advisors.”

Reuters could not determine the source of funds that FTX and its executives used to buy these properties.

PROPERTY PURCHASES

Reuters searched property records at the Bahamas Registrar General’s Department for FTX, Bankman-Fried, his parents and some of the company’s key executives.

FTX Property Holdings Ltd, an FTX unit, bought 15 properties worth nearly $100 million in 2021 and 2022.

Its most expensive purchase was a $30 million penthouse at the Albany, a resort where Tiger Woods hosts a golf tournament every year. The property records for the penthouse, dated March 17, were signed by Ryan Salame, the president of FTX Property, and showed it was intended as “residence for key personnel.”

Salame did not respond to a request for comment.

Other high-end real estate purchases include three condominiums at One Cable Beach, a beachfront residence in New Providence. Records showed the condominiums cost between $950,000 and $2 million and were bought by Nishad Singh, the former head of engineering at FTX, Gary Wang, an FTX co-founder, and Bankman-Fried for residential use.

Singh and Wang did not respond to requests for comment.

Two of FTX Property’s real estate holdings were marked for commercial use – an $8.55 million cluster of houses that served as FTX’s headquarters, and a 4.95-acre plot of land on the coastline overlooking cyan waters that was also meant to be developed into office space for the crypto exchange.

The FTX headquarters is now unoccupied, with furniture pushed against some windows. Its signage has been removed. The plot of land, which cost $4.5 million, also lies empty.

A security guard said employees did not return to the headquarters after leaving earlier this month.

Reporting by Koh Gui Qing; editing by Paritosh Bansal and Claudia Parsons

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Crypto lender Genesis says no immediate plans to file for bankruptcy

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Nov 21 (Reuters) – Cryptocurrency lender Genesis said on Monday it has no immediate plans to file for bankruptcy, days after the collapse of crypto exchange FTX forced it to suspend customer redemptions.

“We have no plans to file bankruptcy imminently. Our goal is to resolve the current situation consensually without the need for any bankruptcy filing,” a Genesis spokesperson said in an emailed statement to Reuters, adding that it continues to have conversations with creditors.

A report from Bloomberg News, citing sources, said Genesis was struggling to raise fresh cash for its lending unit, and warning investors it may need to file for bankruptcy if it does not find funding.

Also, the Wall Street Journal reported, citing sources that the company approached crypto exchange Binance seeking an investment but Binance decided against it, fearing a conflict of interest down the line.

Genesis also approached private equity firm Apollo Global Management (APO.N) for capital assistance, according to the report.

Apollo did not immediately respond to a Reuters request for comment on the WSJ report, while Binance declined to comment.

Last week, Genesis Global Capital suspended customer redemptions in its lending business, citing the sudden failure of Sam Bankman-Fried’s crypto exchange FTX.

Crypto exchange Gemini, which runs a crypto lending product in partnership with Genesis, tweeted on Monday that it was continuing to work with the company to enable its users to redeem funds from its yield-generating “Earn” programme.

In a statement on its blog last week, Gemini said there was no impact on its other products and services after Genesis paused withdrawals.

On Thursday, the Wall Street Journal reported that Genesis had sought an emergency loan of $1 billion from investors before it suspended withdrawals.

Earlier this month, FTX filed for U.S. bankruptcy protection in the highest-profile crypto blowup to date, after traders pulled billions from the platform in three days and rival exchange Binance abandoned a rescue deal.

Reporting by Manya Saini and Lavanya Sushil Ahire in Bengaluru; Additional reporting by Rishabh Jaiswal; Editing by Sriraj Kalluvila, Rashmi Aich and Sam Holmes

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Cryptoverse: Bitcoin miners get stuck in a bear pit

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A bitcoin representation is seen in an illustration picture taken at La Maison du Bitcoin in Paris, France, June 23, 2017. REUTERS/Benoit Tessier

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Sept 27 (Reuters) – Spare a thought for the beleaguered bitcoin miner.

In late 2021, miners were the toast of the town with a surefire path to profit: hook powerful computers up to cheap power, crack fiendishly complex maths puzzles and then sell newly minted coins on the booming market.

A year’s a long time in crypto.

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Global revenue from bitcoin mining has dropped to $17.2 million a day amid a crypto winter and global energy crisis, down about 72% from last November when miners were racking up $62 million a day, according to data from Blockchain.com.

“Bitcoin miners have continued to watch margins compress – the price of bitcoin has fallen, mining difficulty has risen and energy prices have soared,” said Joe Burnett, head analyst at Blockware Solutions.

That’s put serious pressure on some players who bought expensive mining machines, or rigs, banking on rising bitcoin prices to recoup their investment.

Bitcoin is trading at around $19,000 and has failed to break above $25,000 since August, let alone regain November’s all-time high of $69,000.

At the same time, the process of solving puzzles to mine tokens has become more difficult as more miners have come online. This means they must devour more computing power, further upping operating costs, especially for those without long-term power pricing agreements.

Bitcoin miners’ profit for one terahash per second of computing power has fluctuated between $0.119 and $0.070 a day since July, down from $0.45 in November last year and around its lowest levels for two years.

The grim state of affairs could be here to stay, too: Luxor’s Hashrate Index, which measures mining revenue potential, has fallen almost 70% so far this year.

Reuters Graphics

2140: THE LAST BITCOIN

It’s been painful for miners.

Shares of Marathon Digital (MARA.O), Riot Blockchain (RIOT.O) and Valkyrie Bitcoin Miners ETF (WGMI.O) have sunk more than 60% this year, for example, while crypto-mining data center operator Compute North filed for bankruptcy last week.

Yet mining is ultimately a long-term proposition – the last bitcoin is expected be mined in 2140, more than a century away – and some spy opportunity in the gloom.

“The best time to get in is when market’s low, the same mining rigs that went for $10,000 earlier this year you can get that for 50% to 75% off right now,” said William Szamosszegi, CEO of Sazmining Inc which is planning to open a renewable-energy powered bitcoin mining operation.

Indeed, many miners are cutting back on buying rigs, forcing makers to cut prices.

For instance, the popular S19J Pro rig sold for $10,100 in January on average, but now sells for $3,200, analysts at Luxor said, also noting prices for bulk orders of some mining machines had fallen by 10% in just the past week.

Chris Kline, co-founder of crypto investment platform Bitcoin IRA, said miners would have to be “hyper-focused” on energy efficiency, both to bring costs down and to avoid any repercussions from climate change-related regulations.

“From managing their balance sheet, processing units and energy costs, miners will look to stay afloat regardless of current market conditions,” he added.

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Reporting by Lisa Pauline Mattackal and Medha Singh in Bengaluru; Editing by Tom Wilson and Pravin Char

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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Cryptoverse: Bitcoin could be laid low by miners’ malady

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Feb 22 (Reuters) – Bitcoin miners are feeling the heat – and the pain’s rippling downstream to pressure prices.

The cryptocurrency’s spectacular rally in 2021 drew thousands of entrants into mining, or producing new coin. As a result the hashrate, or combined computational power used by bitcoin miners globally, has roughly quadrupled over the past six months to blow past 200 million “terahashes” per second.

But what’s that got to do with the price of bitcoin?

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A rising hashrate makes it becomes harder for miners to earn coin and cover their costs of hardware, electricity and staff – so many are more likely to sell, rather than hold, their newly minted cryptocurrency, exerting a bearish force on the market.

“Running costs are a major factor in miners’ decision to hold or sell newly acquired coins. They are the first and most natural sellers in the crypto space and so definitely impact prices,” said Justin d’Anethan, institutional sales director at crypto financial services firm Amber Group.

The total value of coins held in miners’ wallets has fallen to around $75 billion from $114 billion at the start of November, as their profitability has been squeezed by the rising hashrate as well as falling prices, according to Oslo-based crypto research firm Arcane Research.

Miners have been transferring more coins to exchanges than adding to reserves, according to crypto industry analytics firms, a sign of selling or intent to sell.

Such flows are adding to pressures facing bitcoin , whose drift towards the mainstream has seen it caught up in a selloff in global markets driven by tensions on the Ukraine border and the Federal Reserve’s policy tightening.

The world’s dominant cryptocurrency is trading at about $37,400, which is 40% below its Nov. 10 high of $62,000.

WHAT IT COSTS

Bitcoin mining, in simple terms, is the process by which a network of computers checks and validates a block of transactions that then get added to the blockchain. Miners get rewarded for completing a block.

It’s an expensive business, though, requiring not just sophisticated and fast “rigs” costing upwards of $10,000, but also a huge amount of power. And it’s getting pricier.

The seven-day average of total mining cost per transaction validated has fallen to $176.8 from a record $235.57 hit in May last year, data from blockchain.com shows.

“As more miners join the network, each individually earns fewer bitcoin. This is because network difficulty increases in order to slow the issuance of new bitcoin,” said Joe Burnett, analyst at infrastructure and mining firm Blockware Solutions.

Waning mining profitability is also hitting the broader market because some institutional investors, who are unable or unwilling to invest directly in cryptocurrencies, instead buy shares of listed miners or ETFs that track miners as an alternative way of gaining access to the young industry.

Shares of U.S.-listed crypto miners Marathon Digital Holdings (MARA.O) and Riot Blockchain (RIOT.O) have plunged 66% and 52% respectively since early November.

The Valkyrie Bitcoin Miners ETF (WGMI.O) is meanwhile trading at a roughly 5% discount to its net asset value since the fund’s launch in early February, and the Viridi Clean Energy Crypto-Mining & Semiconductor ETF has lost 23% since the beginning of the year.

THE LAST BITCOIN

Some of the pressures on miners flow from bitcoin’s inherent structure. The decentralised blockchain was created anonymously with a final limit of 21 million coins, of which nearly 19 million has already been minted.

It takes around 10 minutes to mine one block and the reward for miners – who currently get 6.25 bitcoin per block – is halved about every four years.

“There could be one miner or a million, it doesn’t change anything. There’s only one block and a set number of bitcoins issued,” said d’Anethan at Amber Group.

A final note: don’t lose sleep fretting about what will happen when the last bitcoin is mined – that’s not expected until the middle of the next century, 2140 to be exact.

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Reporting by Lisa Mattackal and Medha Singh in Bengaluru; Additional reporting by Alun John in Hong Kong and Vidya Ranganathan in Singapore; Editing by Vidya Ranganathan and Pravin Char

Our Standards: The Thomson Reuters Trust Principles.

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