This is the best time to explore bitcoin mining opportunities

Ruda Pellini, co-founder and president at Arthur Mining, a bitcoin mining company that is ESG-focused, has written this opinion editorial. Recently, I read an article about the debt and leverage of the top Bitcoin mining companies. It is easy to see their financial statements, which can be used to prove the obvious: this business is counter-cyclical and requires professional management and efficiency. If you aren’t sure what mining is, I will quickly explain. Mining is an analogy for the process of extracting metals and gold. Bitcoin miners are the “producers.” Mining is the process of allocating computing power to ensure that the bitcoin network functions, validating transactions, and serving as the backbone for this decentralized system. It is different to invest in bitcoin mining than buying the asset directly. You have a steady and predictable cash flow, and you can liquidate your assets in the event of market stress. This makes mining a more attractive investment than other cash flow generating businesses. The operation itself is also at risk. Bitcoin is currently down more than 65% since its November 2021 peak. Investors are often apprehensive and ask themselves if this is a chance to increase their investments or a risk. The moment is a great time for bitcoin mining operations using structured cash. Warren Buffet said, “It’s only when you see the tide rise that you can tell who was swimming naked.” The Impact of Bitcoin Price on Mining. In general, bitcoin miners see their cash flow decrease as bitcoin prices fall. It seems counterintuitive that mining companies would benefit from lower bitcoin prices. The cost of production is more important than the price of bitcoin, as we are dealing with an industry. The biggest cost in production is the cost for electricity, which is the main input to this data processing activity. Even in adverse market conditions, those who are able to get a good price on energy and remain profitable can be successful. Because not all miners are able to achieve this level of efficiency, many end up with production costs that are very close to the asset’s market price. This forces them to liquidate assets and exit the market. This market, like most commodity markets, is counter-cyclical. It is the best time to expand operations. The price of Bitcoin and the price of mining computers has a positive correlation. This means that the price is adjusted in a greater range than the asset. The price of bitcoin dropped by 47% between April and August, but the price of mining computers fell by 60%. (Source: Arthur Mining) The Bitcoin Mining CompaniesParticularly, I understand the mining industry in much the same way as the network infrastructure (cable) industry of the 1990s, where there were basically three major cycles of expansion and consolidation. Tech enthusiasts and geeks were the ones who created the first cycle. They literally set up and cabled the first network infrastructures. Since 2009, bitcoin miners have also experienced this. The second cycle saw the entry of players who were interested in maximising capital quickly. They ignored the importance of efficiency and focused only on the rapid expansion of their structures and short-term results. The third cycle saw the industry consolidate with players who were focused on efficiency and long-term goals. This encouraged venture capital to enter the market and professionalization. The 50 largest cable companies in the United States were consolidated into four companies by the end 2010 The second cycle was dominated by large mining companies that are too focused on the short-term and not efficient enough. This leads to businesses that are weak and vulnerable to stress. Modified by Arcane Research. Many mining companies took advantage the rising margins of bitcoin to increase their leverage and expand their operations during the big upcycle between 2020 and 2021. This is a common practice in many industries. However, listed miners opted to keep their cash in bitcoin to maximize their profits. Luxor Technologies estimates that listed mining companies have between $3 billion and $4 billion in loan agreements to finance infrastructure expansion and purchases of computers. Source: Arcane ResearchProduce on the Uptrend, Sell on the Downtrend. These players didn’t consider that, like any commodity producer, it made sense to sell the stock and reinvest the proceeds. This increased selling pressure in June and July, which drove prices to new lows. These companies’ cash management strategy resulted in further financial losses and operational losses due to the decline in bitcoin prices. The less efficient mining companies will have to sell their bitcoins from the balance sheet to pay the payments and keep the operation going. This will make it possible for more efficient companies to incorporate these assets and operations. Source: Arcane ResearchTime to ExpandBitcoin mining is anti-cyclical, just like other commodities. Therefore, the best times to grow are during low prices when inefficient miners face difficulties and exit the market. The equipment is currently at a huge discount, so investments made now will yield faster returns. Despite the negative news and the recent months of falling prices, this moment is one of great asymmetry. There is less risk and higher potential returns when investing in bitcoin mining. We are at a time of great opportunities. Those who invest now will reap the benefits in the long-term. All the turmoil of this winter is good news for businesses that have a well-structured business and have strategic advantages that allow for efficiency. These opinions are not necessarily those of BTC Inc.

 

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