The downturn in the price of Bitcoin over the last 8 months–effectively falling 70% since November 2021’s all time high–and $2 trillion value wipe off, is now hitting the Bitcoin mining space.
Celsius Network, known for its high yield interest rate accounts, announced Chapter 11 bankruptcy protection for not only itself, but also its mining subsidiary. The firm listed some 80,000 ASICs on its balance sheet, and has reportedly begun selling units at auction for discount.
Where and how these machines are sold will have a great impact on not only the price of ASIC miners, but also ASIC-backed loans and operational valuations.
Celsius, Voyager and 3AC
The stage for a general mining market meltdown was set by not only token prices cratering, but multiple lending firms imploding. The most notable being of course Celsius Network, which filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of New York Wednesday. The firm claims to have $1.9 billion in its balance sheet, with $4.2 billion in assets and $5.5 billion in liabilities.
The filing follows the difficult but necessary decision by Celsius Network to pause withdrawals, swaps, and transfers on its platform last month in order to stabilize its business and protect its customers. Without this pause, it would have allowed certain customers the opportunity to withdraw funds effectively being paid in full, thereby leaving others behind to wait for the company to liquidate value from short and longer-term asset deployment activities before they receive a recovery.
Celsius Network had attempted to help hundreds-of-thousands of consumers worldwide to find the path towards financial independence through a compounding yield service and instant low-cost loans accessible via a web and mobile app. However, these promised high yields for deposits should have come with a ‘caveat emptor’ disclaimer. Generally, when something appears too good to be true, it usually is.
The Celsius news comes a little over a week after Voyager Digital (VOYG), the Toronto listed crypto lender also filed Chapter 11 owing $5 billion to more than 3 million people and less than 2 months after the two sister digital currencies, Terra and Luna collapsed. Voyager placed blame on now-defunct hedge fund Three Arrows Capital, also known as 3AC, who also filed for bankruptcy. Voyager Digital has accused the hedge fund of failing to make the required payments on its loan of 15,250 Bitcoin and $350 million in USDC, cumulatively worth around $670 million.
Celsius Mining
Celsius Mining is no more, only two months after announcing plans to go public this year via IPO via an S-1 filed with the SEC on May 16, 2022. The mining arm–one of the largest operations in terms of current and future deployments–helped subsidize yield for deposited assets on the lending platform.
According to bankruptcy filings, the firm has some 80,000 ASICs for a total of $720 million in all mining assets. Of the 80,000 ASICs, 43,632 ASICs were online generating 14.2 Bitcoin per day for a total of 3,114 Bitcoin produced in 2021. The firm expected to triple its generated Bitcoin yield in 2022 and deploy 110,000 ASICs by 2023.
Celsius also signed a 102 megawatt (MW) co-location deal with Bitcoin miner Mawson Infrastructure (MIGI) that required the company to provide a data center to host mining equipment in March 2022.
Documents reported by CoinDesk show that Celsius began liquidating ASICs in late June at bargain rates. Auction documents show discount prices for S19 miners for nearly 50% off June values, at between $22-$28/TH. It remains to be seen who purchased the units and to what extent more units or infrastructure will be sold off.
Over the last year, Celsius itself invested $500 million into the mining business in 2021, according to The Block. The firm has investments for equity with Core Scientific, Rhodium and Luxor Technologies, while issuing loans to both Core Scientific and Argo Blockchain for facility expansions. It remains to be seen how these equity positions and loans will be unwound during Chapter 11.
Fortune favors the brave in crypto
As Galaxy Digital Chief Mining Officer Amanda Fabiano highlighted at the May AIM Summit in London, the sector is likely to see a significant amount of merger and acquisition deals over the next 12 months as companies start to have difficulty meeting their liabilities. Celsius and Voyager’s losses are sure to only accelerate the process.
This domino effect within the crypto space has similar traits to that of the gambling and overleveraging of the big banks during the 2008 Financial Crisis. However, during that crisis, the banks were rescued by government intervention from central banks, which saw hundreds of billions in a mass bail-out of the banking industry. In the crypto space it appears there will be no similar type of rescue plan, no intervention from the government and likely no insurance for those customers who had deposits on any of the aforementioned exchanges.
With the latest sky-high U.S. inflation reading pushing the Bitcoin price, today, below $20,000 there appears no real end to the current cycle, and with the number of S11 zxfilings over the past few months, this has not helped attract new investors or the return of previous investors moving back into this space. However, there are equally a number of analysts who believe that Bitcoin is cyclical and that the Bitcoin price could return to its all time high prices before 2025.
In my next article I will focus on three Bitcoin miners, Bitfarms (BITF), Argo Blockchain (ARBK) and Greenidge Generation Holdings (GREE) and their navigation through the debt market, during the bull cycle and the potential impact now, in meeting their liabilities with the recent downward trajectory of the Bitcoin price.
With additional writing from William Foxley
Photo by Saskia van Manen on Unsplash
