In November 2021, the Bitcoin mining sector saw a surge in activity due to a combination of factors. The value of Bitcoin at that time was at an all-time high of $67,734, while the Hash Spread reached a record high of $550 per Megawatt Hour (MWh). These high prices and mining margins attracted new capital from investors looking to capitalize on the potential profits available in the sector.
Additionally, competition in the sector had been reduced in the period leading up to this boom due to China’s ban on Bitcoin mining, making the sector more attractive for new entrants. With these high prices and margins, investors were enticed to the sector by the promise of rapid investment payback periods.
However, once these investments were made (investors aping in), the profits diminished, putting pressure on the businesses and miners with the final result, yes, you guessed it, Insolvency. A tale as old as time.
Bitcoin mining lenders and borrowers find themselves in a difficult financial position and resort to bankruptcy. This is likely due to the current profitability of the mining operations' inability to service the financial obligations they agreed to.
Bitcoin is currently undergoing a difficult market cycle. This cycle is notable because investment from institutional miners played a much bigger role than in past cycles. The current downturn looks like the classic pattern of a boom and bust business cycle, as always. (The boom and unavoidable bust is just a part of capitalism. There's always a bust; it's never "different this time")
Talking about difficulty, let's look at the mining difficulty.
Traders are trying to find the bottom of the market. At the same time, credit markets are providing excellent opportunities for investors to earn high yields in a low-price environment with the potential for recovery.
Therefore, instead of predicting when the cycle will end, it is best to focus on having a disciplined capital strategy to prepare for the next cycle.
Therefore, disciplined capital should be utilized to gain the most from the current situation.
Also credits to One River Digital Asset Management LLC for their research
