Marathon Digital has made a bold choice different from other mining companies, purchasing a large amount of Bitcoin.
By Climber, Jinse Finance
Since the last Bitcoin halving, mining companies have faced increasing revenue pressure. Not only have small mining companies begun to shut down, but even large mining enterprises have also injected a large amount of funds. Data shows that after the halving, listed mining companies raised a total of $2.2 billion to cope with cash flow tightening.
In addition to increasing stock market issuance, these leading mining companies have also used equity financing, convertible notes, and loans to alleviate debt problems caused by tight liquidity.
However, financing can only solve immediate needs. Listed mining companies still need to find new paths for economic growth, including increasing mining machines to enhance computing power, acquiring and merging to expand mining fields, and turning to the AI field. It is worth noting that some mining companies have started to invest in Bitcoin, such as Marathon Digital, which recently purchased over 4,000 BTC. This indicates that investing in BTC has become one of the business choices for large mining companies, attempting to follow in the footsteps of MicroStrategy.
Continuous financing for listed mining companies
On August 1st, Galaxy released the 2024 Bitcoin mining mid-year report, showing that in Q1, listed mining companies raised $1.8 billion, setting a record for the highest quarterly financing amount in the past three years. Of the $1.8 billion raised, 75% came from the top three miners in terms of market value: Marathon, CleanSpark, and Riot.
In addition, from the beginning of the year to the present, there have been numerous mergers and acquisitions among Bitcoin mining companies, with a total transaction value exceeding $460 million, including site sales, reverse mergers, and company acquisitions.
According to TheMinerMag data, in Q2 of 2024, 9 out of 13 listed mining companies in the United States—Bitdeer, Bitfarms, Cipher, CleanSpark, Core, HIVE, Marathon, Riot, and Terawulf—raised a total of $1.25 billion through various stock issuance plans. In addition, Iris Energy raised $458 million in the second quarter, bringing the total funds raised by mining companies to over $1.7 billion.
In the third quarter to date, an additional $530 million has been raised, bringing the total financing amount to over $2.2 billion.
From the above chart, it can be seen that the fundraising amount for mining companies in Q1 and Q2 of 2024 both exceeded $1.5 billion. Although the data for the second quarter is slightly lower than the first quarter, it is worth noting that since the second quarter, there has been an increase in convertible notes and asset-backed loans.
The significant increase in financing for listed mining companies this year can largely be attributed to their urgent need for cash flow. Especially with the arrival of the Bitcoin halving cycle, mining revenue has significantly decreased, making the survival environment for mining companies increasingly harsh. Such negative news has frequently appeared in reports.
For example, in August of this year, Bitcoin mining company Core Scientific announced its financial performance for the second quarter of the 2024 fiscal year, with a net loss of $804.9 million, compared to a net loss of $9.3 million in the same period last year.
Cipher Mining's Q2 financial report showed a net loss of $15 million for the quarter, slightly higher than the net loss of $13.2 million in the same period last year. Just last month, the company had plans to sell after receiving acquisition intentions.
Even the leading mining company Marathon's second-quarter revenue was lower than expected, at $145.1 million, and its second-quarter adjusted EBITDA turned from a profit of $35.8 million in the previous year to a loss of $85.1 million.
In July, the California-based Bitcoin-specific investment platform Swan's CEO announced that the company is withdrawing its mining business, downsizing, and canceling its listing plan. Swan's hosting mining department was established in July 2023, with plans to go public by the end of this year.
Decreased revenue and expansion of new paths
The main reason for the decrease in revenue for listed mining companies comes from the Bitcoin halving, which does not need to be elaborated on. Behind the fact that mining companies are willing to issue more shares to raise funds, there are other factors such as the historical high increase in mining difficulty and increased electricity costs.
According to statistics from Bitcoin Magazine, the Bitcoin mining difficulty has reached a historical high. As of the writing, the Bitcoin mining difficulty is 86.87 T, with an average network hash rate of 633.73 EH/s over the past seven days. Correspondingly, Bitcoin miner income has hit a yearly low as the mining difficulty peaked, with only $2.54 million on August 11th.
In addition, JPMorgan analysts also pointed out that Bitcoin mining profitability in August has dropped to its lowest level in history.
On the other hand, the electricity costs for mining companies are also increasing. The Bitcoin halving and the increase in mining difficulty have forced mining companies to increase machine performance, expand the number of machines, and expand the range of mining fields to maintain income, which inevitably leads to an increase in electricity consumption.
Due to the scarcity of electricity resources and environmental factors, government departments are also attempting to raise electricity prices to pressure mining companies. For example, a senior official from the International Monetary Fund proposed an 85% increase in cryptocurrency mining electricity prices, and the Paraguayan National Electricity Administration raised the electricity fees for cryptocurrency mining operators by 14%.
The sharp decrease in revenue and the pressure on operating costs have led mining companies to continuously explore new paths for business development. For example, the efforts of the aforementioned mining companies to increase production capacity, recent cases include Bitdeer's plan to issue $150 million in convertible bonds for data center expansion, and Cleanspark's acquisition of 26,000 immersion mining machines from Bitmain for $167.7 million.
In addition, there is a trend of mergers and acquisitions among mining companies. For example, Riot Platforms acquired Block Mining for $92.5 million, CoreWeave intends to fully acquire Core Scientific, and Bitfarms is in negotiations to acquire Stronghold Digital Mining for approximately $164 million.
In addition to improving mining business capabilities, mining companies are also attempting to transition to the AI field. Examples include Core Scientific signing a long-term contract with CoreWeave, Hut8 announcing the commercialization of AI business, and Bitdeer's proposed all-stock acquisition of ASIC chip design company Desiweminer for $140 million.
The transition to AI has proven to be effective for mining companies, with their stock prices showing varying degrees of recovery. However, in the long run, it still needs to be tested by the market. Clearly, the above paths for mining companies require a large amount of capital to achieve, which also explains why mining companies have been continuously raising a large amount of financing.
What is different from the past is that some mining companies have started to use the funds raised for investing in Bitcoin.
On August 12th, Marathon Digital Holdings announced plans to privately issue $250 million in convertible preferred notes, and the company intends to use the net proceeds from the sale of the notes to purchase additional Bitcoin. Shortly thereafter, news spread in the market that the company had purchased 4,144 BTC in just two days.
In July, Marathon Digital increased its holdings by 2,282 BTC, and did not sell any Bitcoin in June.
Marathon Digital's decision to buy a large amount of Bitcoin is related to its performance. Its revenue in the second quarter did not meet expectations. The company has made multiple efforts this year, such as acquiring Applied Digital's Bitcoin mining data center for $87.3 million, collaborating with NiceHash to launch custom firmware for Bitcoin ASIC miners optimized for the NiceHash mining platform, and launching mining products MARAFW firmware and MARA UCB 2100 control board. However, these measures have all led to an increase in the company's stock price.
Another mining company, CleanSpark, mined 494 BTC in July, but only sold 2.54 BTC, resulting in a reserve of 7,082 BTC.
CryptoQuant's research report also indicates that the Bitcoin hash indicator suggests that the period of miner selling has ended.
The above phenomena indicate that listed mining companies are raising funds through the issuance of convertible bonds and stocks to expand market share and increase hash rates, but ultimately, they are still looking for ways to maximize profits. Retaining Bitcoin and investing in Bitcoin are becoming business choices for mining companies.
Conclusion
The decrease in revenue has forced mining companies to seek diversified sources of income to maintain competitiveness, with conventional methods including improving existing business capabilities and levels, acquiring and consolidating, and adjusting industrial directions. However, Marathon Digital has made a bold choice different from other mining companies, which is to purchase a large amount of Bitcoin.
In fact, the successful model of MicroStrategy is right in front of us. The returns brought by mining companies increasing their investment in Bitcoin may not necessarily be lower than other businesses, and continuing to sell Bitcoin obviously cannot help mining companies escape their current predicament.
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