Bitcoin Miner Woes Risk Getting Worse After Celsius Collapse

An already beleaguered cryptocurrency mining sector could soon be facing some additional pressure from the Celsius Network bankruptcy filing. 

The troubled crypto lender’s mining subsidiary also filed for protection from creditors late Wednesday. Celsius Mining said in the filing that it owns 80,850 rigs -- with 43,632 in operation -- and expects to run about 120,000 rigs and generate more than 10,000 coins by the end of this year. That would make the unit one of the largest Bitcoin miners, which use energy-intensive computers to process records of transactions and earn rewards in the virtual currency.

Industry observers had speculated that the mining business could be for sale as way to raise cash since Celsius halted investor withdrawals last month. Besides any bankruptcy related complications that may now arise, a possible offloading of the rigs could prove to be troublesome. 

“Celsius Mining selling machines would add downward pressure to already falling machines prices,” said Matthew Kimmell, digital asset analyst at CoinShares. 

The bankruptcy comes as the value of mining rigs plunges with Bitcoin prices in sharp decline. Some of the most popular machine models have fallen as much as 50% since the last bull run and miners are struggling to complete purchase orders they made several months ago. Miners in Texas shut down this week because of stress on the local power grid.

Our trading desk “usually sees a 10-15% slippage of the market of a sell order if the machines want to move quickly,” said Ethan Vera, chief operations officer at crypto-mining services provider Luxor Technologies. “This will likely represent a 60-70% loss on their initial investment.”   

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

“The Mining Center is an essential driver of growth in the debtors’ business and will allow the debtors to expand and more profitably mine Bitcoin.” according to the filing. 

Celsius Mining has also started building a mining facility in Texas with four sites, where it could host over a quarter of the company’s rigs. The company engaged vendors to procure and provide goods and services for the construction, which could be completed in the coming weeks, according to the filing. 

In June, the company sold at least 7,000 rigs through a confidential auction before it filed for bankruptcy, CoinDesk reported earlier. However, it remains unclear whether Celsius will completely sell or continue its mining unit after the restructuring process. A Celsius representative didn’t return a message seeking comment on the reported rig sales.     

“It seems Celsius is aiming to continue at least part of the Celsius Mining operations following the restructuring as a means to generate Bitcoin rewards and pay down some of their outstanding liabilities.” Kimmell said. 

Even with the price of Bitcoin down about 70% from its November high and many miners struggling, Kimmell said the assets may still prove to be attractive if Celsius decides to shed them. 

This “may present a good opportunity for well capitalized miners to expand depending on their ability to deploy, electricity cost, and the efficiency of Celsius’ machines,” he said.