Original author: flowie, ChainCatcher
Original editor: Marco, ChainCatcher
Every Bitcoin halving is a stress test for mining companies.
Around April 2024, Bitcoin will usher in the fourth Bitcoin halving. At that time, Bitcoin’s block reward will be reduced from 6.25 to 3.125 Bitcoins. On the one hand, the halving will increase the difficulty of mining and affect the income of mining companies. On the other hand, the expected increase in currency prices caused by the halving will also make mining more profitable.
Large mining companies, before the halving, began to take precautions and actively raised funds through equity financing, credit lending, selling Bitcoin and other methods to prepare ammunition for the upcoming Bitcoin halving.
According to incomplete statistics from ChainCatcher, in the past three months from the end of October 2023 to the end of January 2024, at least more than 11 Bitcoin mining companies announced that they had received financing, raising more than US$700 million. In addition, some mining companies are still actively raising funds. On October 31 last year, Bitcoin mining company Marathon Digital submitted an S-3 form to the SEC, planning to raise up to US$750 million through a hybrid equity issuance.
Mining companies are actively raising funds on the eve of the halving, and the amount may exceed US$1.5 billion
The threat of Bitcoin halving to most mining companies is very intuitive. In addition to the revenue from mining block rewards being reduced by half, mining companies production and operating costs and other costs are increasing.
According to Grayscale’s latest report, in 2023, the 7-day average hash rate soared from 255 EH/s to 516 EH/s, an increase of 102%, significantly exceeding the 41% growth rate in 2022. As computing power increases, the difficulty and cost of Bitcoin mining are increasing.
Many mining companies have recently been spending a lot of money to purchase new mining equipment. For example, Bitcoin mining company CleanSpark announced the acquisition of three Bitcoin mining facilities in Mississippi for $19.8 million. Crypto mining companies Phoenix Group and CleanSpark purchased US$187 million worth of Bitcoin mining machines and 160,000 Bitcoin mining machines respectively from Bitmain.
Faced with the dual challenges of reduced income and increased expenses, Bitcoin mining companies have successively raised funds in the past four months to alleviate short-term financial pressure.
According to the encryption data platform RootData, in the past three months from the end of October 2023 to the end of January 2024, there were 4 to 5 financings almost every month, most of which amounted to tens of millions of dollars.
The largest financing was the IPO completed by Bitcoin mining company Phoenix Group in December last year. Phoenix Group completed a US$371 million IPO on the Abu Dhabi Securities Exchange (ADX). The IPO attracted US$12 billion in funds and was oversubscribed 33 times.
In addition to Phoenix Group, Australian Bitcoin miner Arkon Energy also completed over US$100 million in financing in the same month. The financing was led by Bluesky Capital Management, with participation from Kestrel 0x 1, Nural Capital and others. Previously, on October 24, Bitcoin mining company Crusoe Energy announced that it had received a US$200 million support and financing commitment from investment company Upper 90.
In addition, two mining companies have raised more than US$50 million. Canaan Intelligentsia raised US$75 million through two rounds of preferred stock issuance to be used for research and development, expansion of production scale and other general corporate purposes. Core Scientific, which has completed bankruptcy reorganization, announced in December 2023 that its US$55 million equity offering had been oversubscribed.
Some Bitcoin mining companies are on the way to raising funds. On October 27 last year, Marathon Digital, a Bitcoin mining company with a market capitalization of US$6 billion, submitted Form S-3 to the SEC, planning to raise up to US$750 million through a hybrid equity offering. According to the filing, Marathon Digital plans to use most of the funds raised to purchase more Bitcoin mining machines. Subsequently, another mining company Bitfury also planned to sell 10 million Cipher Mining common shares in anticipation of obtaining nearly $30 million in financing.
If the financing goes smoothly, it is expected that Bitcoin mining companies may receive a total of more than US$1.5 billion in financing before and after the halving.
In addition to active financing, Bitcoin miners are also selling large amounts of Bitcoin to obtain liquidity. According to CryptoQuant data, in one month from early January to early February 2024, Bitcoin reserves (unsold Bitcoins held in digital wallets associated with the company) decreased by 8,400 to 1.8 million. This level was last seen in June 2021.
When halving meets BitcoinFi, do mining companies face opportunities or a reshuffle?
Although debt and equity financing can alleviate financial pressure, in the long run, it also creates greater financial risks for mining companies after the halving.
Since the Bitcoin halving mainly affects block reward income, mining companies such as Bitmain, which mainly sell mining machines, will be relatively less affected. Mining companies, represented by Marathon Digital, Hut 8, and Riot, whose main revenue is mining and currency hoarding, can only rely on improving the efficiency of Bitcoin mining and Bitcoin appreciation to make profits. They have high debt ratios and relatively high leverage. big. And its revenue is strongly correlated with the price of Bitcoin. Such mining companies may face insolvency in a bear market.
Looking back at the last halving cycle (May 2020), although the price of Bitcoin rose by 72% in the first half of the year after the halving, most of the mining companies whose main revenue was mining and hoarding of coins ushered in a decline after the halving. A larger net loss.
For example, take Marathon Digital as an example. In 2021 after the halving, the crypto market entered a bull market, with the price of Bitcoin reaching a peak of nearly US$70,000. Marathons total revenue also reached US$159 million this year, compared with 437 million US dollars in 2020. Revenue of US$10,000 has increased 35 times, but total operating costs in 2021 have also increased 26 times compared with 2020. Ultimately, the net loss in 2021 expanded from more than US$10 million in 2020 to more than US$37 million. As the crypto market entered a bear market in 2022, Marathons net loss expanded to $686 million.
Similar to Marathon, Riot will have a net loss of US$510 million in 2022; Core Scientific will file for bankruptcy protection at the end of 2022 due to excessive losses; mining companies such as Argo are also selling assets due to liabilities.
Under the new halving cycle in 2024, mining companies will still face similar financial challenges. According to the 2023 mining report released by CoinShares, the average production cost of each Bitcoin is expected to be US$37,900 after the fourth halving in 2024. Most miners will be challenged by the cost of selling and administrative expenses and will need to reduce costs to remain profitable. Unless the price of Bitcoin remains above $40,000, only Bitfarms, Iris, CleanSpark, TeraWulf and Cormint can continue to make profits. The Hashrate Index predicts that there will be more mergers, acquisitions and asset sales of mining companies in 2024 and 2025.
Although the halving in 2024 has brought challenges to mining companies, compared with the previous three halvings, the halving in 2024 also presents some new variables and opportunities worthy of attention.
Looking back in 2023, with the explosion of the Bitcoin ecosystem, mining and mining companies have ushered in some degree of recovery. The total annual revenue of Bitcoin mining (transaction fees and mining rewards) is nearly 10 billion US dollars, and the total revenue is slowly rising every quarter. According to Hashrate Index statistics, almost every listed mining company has achieved substantial increases in stock price, market value and company valuation in 2023. The financial situation of listed Bitcoin mining companies is healthier than in 2022.
The net losses of many mining companies in 2023 are narrowing significantly. For example, Marathons loss narrowed from US$686 million in 2022 to US$268 million; Riots loss narrowed from US$510 million in 2022 to US$288 million.
In addition to block rewards, the income source of Bitcoin mining also includes transaction fees. With the halving of block rewards, the importance of transaction fees will become more and more important. The explosion of Ordinals and Inscriptions in 2023 will cause the transaction fees for mining to increase significantly, bringing new opportunities to mining companies.
According to statistics from Hashrate Index, transaction fees will account for 7.6% of block rewards in 2023, while in 2022 it will be only 1.5%. On November 20, 2023, the transaction fees of the Bitcoin network also exceeded those of the Ethereum network for the first time, setting a historical record.
As Bitcoin continues to rise this year, if the transaction volume of Inscription activities continues to increase, the concentrated explosion of Bitcoin Layer 2 may attract more developers and users to promote innovation and activity on the Bitcoin network chain, resulting in Transaction fees will become one of the most important sources of income for miners.
In addition, the approval of the U.S. Bitcoin spot ETF at the beginning of the year may also offset the continued selling pressure from mining issuance, thereby having a more positive impact on the price of Bitcoin and slowing down the balance sheet of Bitcoin mining companies. Rate.
But in general, although the expansion of Bitcoin in various dimensions has brought some opportunities to mining companies, the revenue challenges brought by halving are still steep. Mining companies need to control costs and seek more revenue models. .
