As bitcoin boomed, crypto mining seemed almost like printing money. But in reality, miners have always had to juggle the cost of hardware, electricity and operations against the tokens their work yielded. Often miners held onto their crypto, betting it would appreciate, or borrowed against it to buy more mining rigs. Now all those bills are coming due: The industry has accumulated as much as $4 billion in debt, according to some estimates.

The crypto boom encouraged excess. “The approach was get rich quick, build it big, build it fast, use leverage. Do it now,” said Andrew Webber, founder and CEO at crypto mining service provider Digital Power Optimization.

• The crypto crackdown in China briefly caused a glut of mining hardware to flood the market. But bitcoin’s bull run soon soaked up the extra gear as miners opened up shop in places with cheap energy and looser regulation. The U.S. became a center of mining, particularly in Texas, Kentucky and elsewhere.
• There was also a boom in lending. Startup-financing specialist Pipe offered a “mine now, pay later” service. Many lenders took crypto as collateral for fiat loans that miners spent on equipment or loaned against the equipment itself.

Bitcoin miners are HODLers by nature. Many preferred to hold most of the bitcoin they generated, selling just what they needed to pay employees or other suppliers, because they believed it would go up in value.

• That speculative math no longer works. Monthly mining revenue has fallen by 63% from its peak in March 2021. Meanwhile, rising energy costs and supply chain problems mean miners' costs are going up. “Ultimately, there have been a lot more computers made than anybody really needs when bitcoin plunges to $20,000,” Webber said.
• Canadian miner Bitfarms said last week that it had sold nearly half of its bitcoin — 3,000 BTC — as it “adjusted its HODL strategy.”
• Compass Mining lost one of its hosting facilities in Maine after Dynamics Mining, the owner of the facility, cut it off, saying Compass had not paid its bills. Compass denied that it owed Dynamics money, but both Compass’ CEO and CFO also resigned last week.

Everything in this crypto market comes back to leverage. While miners are typically borrowing to operate, not speculate, debt is still a key part of the business.

• The publicly traded company with the highest machine payments due this year out of the eight publicly traded mining companies is Marathon, with $260 million, according to Arcane Research. That’s more than six times its current operating cash flow, by Arcane’s analysis. Marathon does have a strong balance sheet and cash, Arcane notes.
• Many mining companies bought warehouses’ worth of specialized bitcoin mining machines called ASICs. A number of these operations are not fully built yet — meaning capacity could be coming online when it’s least needed.
• Stronghold for example has a debt to equity ratio of 4.7, the highest among the publicly traded mining companies, which is “exceptionally high,” Arcane Research’s Jaran Mellerud notes. Core Scientific is second at 2.1. Stronghold borrowed money last summer at a 10% interest rate, according to its filings.

Are defaults coming? As the price of bitcoin and other cryptocurrencies has fallen, so has the value of mining hardware. This could be forcing some to decide whether it’s worth making payments, Webber said. “I expect there's gonna be some meaningful distress and likely some liquidation or consolidation across the space.” It wouldn’t be the first time a rush for money turned to bust.