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Loan Investment in Bitmain’s Miners, Bear Market, Changed Celsius’ Plan

The drop in the price of Bitmain mining machines could have contributed directly to the woes of crypto lending firm, Celsius Network LLC (CNL), and its bankruptcy filings have shown.  The use of borrowed funds to buy Bitmain’s high-priced mining machines added to the platform’s accumulated debts – as well as that of several other companies connected to it – as prices of top cryptocurrencies dip.

Filed last week to the U.S. Bankruptcy Court of the Southern District of New York, the documents show that the company holds $4.3b of assets and $5.5b of liabilities with a $1.3b shortfall in its balance sheet.

The filings note that the company, in addition to its financial and trading operations, operated one of the largest crypto mining enterprises in the United States which it sought to expand to generate a greater yield. As a result, between November 1, 2020, through 2021, Celsius entered into an intercompany revolver facility to purchase rigs with up to $750m to now have 80,850 rigs with 43,632 in operation. Before the petition date, the Celsius Mining arm had a plan to operate approximately 120,000 rigs by end of 2022.

 

Bear market, investment in Bitmain’s miners changed Celsius’ plan

“Mining is currently generating approximately 14.2 Bitcoins per day for the past seven days and generated a total of 3,114 Bitcoin during 2021,” the documents note. “For 2022, it is projecting to generate 10,118 Bitcoin. For 2023, assuming at least 110,000 rigs will be online, Mining is projecting to generate approximately 15,000 Bitcoin. As of May 31, 2022, the outstanding loan balance owed to CNL is approximately, $576 million.”

The prolonged crypto bear market that kept Bitcoin’s price low and got the prices of Bitmain’s miners slashed in half ate into the lending platform’s plan. It seems the loan, as a long-term investment that is expected to generate significant yield for the company in the future, was badly impacted. 

Prior to the crypto market drawdown that set in by December 2021 according to some market estimates, Celsius CEO Alex Mashinsky had disclosed a month earlier that they invested additional funding into Bitcoin mining to reach a $500m investment. 

 

Bitmain aware of customers’ plight 

The market’s downward trend saw Bitmain even announce a reward coupon program to cushion the effect. Customers who purchased standard Long-term Agreements from February to June 2021 and paid up in full for delivery batches in or before July 2022  would get a 30% reduction in their total orders.

 

The selling pressure in the secondary market has driven Bitmain to reprice futures orders for new machines, Luxor Mining, which regularly provides industry-related analysis, data, and hash rate insights, notes in a newsletter at the end of June that the flush-outs in the Bitcoin mining ASIC market had begun.

It added that though new-gen machines are the least susceptible to price shocks and Bitcoin miners favor them over others for their efficiency, new and mid-gen machine models have been plummeting to yearly lows and capitulation in full swing.

With the cost of electricity for one Bitcoin now fallen from about $24,000 in early June to about $13,000 according to JPMorgan, miners profit has lessened and the pressure on them to sell their bitcoin reduced. However, the falling electricity costs could harm the top cryptocurrency’s future price outlook.

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