Bitcoin cloud mining firm Giga Watt has declared Chapter 11 bankruptcy, leaving in its wake USD 10-50 million of unpaid liabilities. The cryptocurrency cloud mining industry and the mining industry, in general, is in an intractable situation due to the severe bear market of 2018.
The price of Bitcoin has declined from USD 20,000 to less than USD 4,500 in the past year. During the same time, the total cryptocurrency market cap has plummeted from a peak of USD 813 billion to USD 147 billion as of this writing on 22 November 2018. This price crash has drastically reduced cryptocurrency mining profits, to the point that in November 2018 numerous Bitcoin miners appear to be shutting down their rigs. In October 2017, Bitcoin’s network hash rate peaked at 60 Exahash/s several times but has now been slashed to 35 Exahash/s. That means there is 25 Exahash/s worth of rigs out there that simply cannot mine profitably at the current price level of Bitcoin.
Cloud mining needs higher profit margins than regular mining to function as a business since there must be enough profits to divide up between both the users and the cloud mining firm.
Giga Watt is leaving unpaid bills of USD 310,000 for a utilities company in Douglas County, Washington and owes Neppel Electric nearly USD 500,000. The top 20 creditors alone are owed USD 7 million but in total there is USD 10-50 million of debt owed by Giga Watt. To put this in perspective, Giga Watt only has USD 50,000 of assets, likely due to a long period of time where mining was not profitable, forcing the firm to burn through investor’s money to survive. Also, the depreciation in value of cryptocurrency mining rigs likely led to its total assets reaching such a low number.
Under the Chapter 11 bankruptcy laws there is a chance Giga Watt could reorganize and survive but that is up to a judge to decide. Surprisingly, the Giga Watt website is still operational and offering products, with no indication that the firm has declared bankruptcy posted on the site. This could perhaps be part of the liquidation process, with the company selling off its mining equipment to pay off a fraction of debts owed.
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