Bitcoin miners’ problems may worsen with percentage collapse

An already beleaguered crypto-mining sector may face additional pressures from Celsius Network’s bankruptcy filing.

The miner of the troubled cryptocurrency lender also filed for creditor protection Wednesday night. Celsius Mining said in the filing that it owns 80,850 rigs, with 43,632 rigs in operation, and expects to operate about 120,000 rigs and generate more than 10,000 coins by the end of this year. This would make the unit one of the largest bitcoin miners, who use power-hungry computers to process transaction records and earn rewards in virtual currency.

Industry watchers have speculated that the mining business may be up for sale as a way to raise funds since Celsius halted investor withdrawals last month. In addition to any complications related to bankruptcy that may arise now, the potential unloading of platforms could be a problem.

“Celsius Mining vending machines will add downward pressure on already declining machine prices,” said Matthew Kimmel, digital asset analyst at CoinShares.

Bankruptcy occurs as the value of mining rigs declines as bitcoin prices fall. Some of the most popular machine models are down as much as 50% since the last rally, and miners are struggling to fill their orders several months ago. Miners in Texas closed this week due to pressure on the local power grid.

Our trading desk “usually sees 10-15% slippage in the market for a sell order if the machines want to move quickly,” said Ethan Vera, COO of cryptocurrency mining services provider Luxor Technologies. “This will likely represent a loss of 60-70% of your initial investment.”

The Jersey City, New Jersey-based company was touting the unit as an attractive strategic asset. Celsius invested about $500 million in Celsius Mining and even prepared it for its initial public offering in May.

“The mining hub is a key growth driver for the debtor’s business and will allow debtors to expand and mine Bitcoin more profitably.” according to the file.

Celsius Mining has also begun building a four-location mining facility in Texas that could house more than a quarter of the company’s rigs. The company has contracted with suppliers to purchase and provide goods and services for the construction, which may be completed in the coming weeks, according to the document.

In June, the company sold at least 7,000 rigs through a secret auction before filing for bankruptcy, CoinDesk previously reported. However, it is unclear if Celsius will sell out entirely or continue the mining unit after the restructuring. A Celsius representative did not respond with a message requesting comment on reported platform sales.

“It appears that Celsius aims to continue at least part of Celsius Mining’s operations after the restructuring as a means of generating Bitcoin rewards and paying some of its outstanding obligations.” Kimmel said.

Even with bitcoin’s price down 70% from its November high and many miners struggling, Kimmell said the asset could still be attractive if Celsius decides to dump it.

This, he said, “may present a good opportunity for well-capitalized miners to expand based on their sawing capacity, electricity cost, and percentile efficiency of machines.”