The Bitcoin Mining Dilemma
Today, Bitcoin mining companies are trying to strike a very tricky balance: They need to pursue gains from the possible future price increase on one hand, but on the other, they need to keep their lights on. It's a tricky balancing act that's making some miners take bold steps.
Take the case, for example, of Marathon Digital. That's right, they are planning to sell a boatload, $250 million worth, of convertible notes. Sure, that is a hefty sum of money and clear evidence of just how much they are willing to go for more Bitcoin in this depressive period. They are, in effect, taking on debt to buy more of an already highly volatile asset. It's like maxing out your credit card to buy lottery tickets.
It can pay off massively if the price of Bitcoin soars one day, but it also is very risky.
What this move does, in effect, is highlight the contrast with recent Marathon behavior. Not so long ago, they were even forced to sell half of the Bitcoin they mined to cover operating costs. Now, it seems they are not only holding everything they mine but even buying more on the market. Almost like watching someone go from pinching pennies to suddenly splurging on a shopping spree.
The whole thing raises some big questions about the sustainability of Bitcoin mining. All of these companies are in some sense betting big on the future value of Bitcoin, but they are doing so with money they have borrowed. Should the price of Bitcoin come crashing down, they would find themselves having to service the loans while their major asset withers away.
Not to mention what this could mean for the broader crypto market if major players like Marathon are making such emphatic moves to acquire yet more Bitcoin. It is highly confident in its future. But this can equally be read as a desperate gamble, only further underlining how cutthroat an industry this is at times.
The truth of the matter is that nobody really knows how all this will play out. The change in the world of crypto is unexpectedly fickle; something that looks like an act of genius today is foolish tomorrow.
Posted Using InLeo Alpha