Mining companies are launching a wave of financing, and Marathon Digital is targeting Bitcoin

Author: Climber, Golden Finance

Since the recent Bitcoin halving, mining companies have faced increasing revenue pressure. Not only has there been a wave of shutdowns among small mining firms, but even large mining enterprises have undergone significant capital injections. Data shows that after the halving, publicly listed mining companies raised a total of $2.2 billion to cope with tightening cash flow.

In addition to increasing stock market issuances, these leading mining companies have also alleviated debt issues caused by liquidity constraints through equity financing, convertible notes, and loans.

However, financing can only address immediate needs; publicly listed mining companies still need to find new paths for economic growth. This includes increasing mining machine capacity, acquiring and merging to expand mining sites, and shifting towards the AI sector. Notably, some mining companies have begun 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 options for large mining companies, attempting to follow in the footsteps of MicroStrategy.

Publicly Listed Mining Companies with Continuous Financing

On August 1, Galaxy released its mid-year report for Bitcoin mining in 2024, showing that publicly listed mining companies raised $1.8 billion in Q1, 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: Marathon, CleanSpark, and Riot.

Additionally, since the beginning of the year, there have been numerous merger and acquisition transactions among Bitcoin mining companies, with a total transaction value exceeding $460 million. The types of transactions include site sales, reverse mergers, and company acquisitions.

According to data from TheMinerMag, in Q2 2024, 9 out of 13 mining companies listed in the U.S. — Bitdeer, Bitfarms, Cipher, CleanSpark, Core, HIVE, Marathon, Riot, and Terawulf — raised a total of $1.25 billion through various stock issuance plans. Furthermore, Iris Energy raised $458 million in Q2, bringing the total funds raised by miners to over $1.7 billion.

As of the third quarter, another $530 million has been raised, bringing the total financing amount to over $2.2 billion.

From the chart above, it can be seen that the funds raised by mining companies in Q1 and Q2 of 2024 both exceeded $1.5 billion. Although the Q2 data was slightly lower than Q1, it is worth noting that since Q2, there has been an increase in convertible notes and asset-backed loans.

The significant increase in financing amounts for publicly listed mining companies this year greatly indicates their urgent need for cash flow. Especially with the arrival of the Bitcoin halving cycle, mining revenues have drastically decreased, and the survival environment for mining companies has become increasingly harsh. Such negative news has frequently appeared in reports.

In August of this year, Bitcoin mining company Core Scientific announced its financial performance for Q2 of fiscal year 2024, reporting a net loss of $804.9 million, compared to a net loss of $9.3 million in the same period of 2023.

Cipher Mining's Q2 financial report showed a net loss of $15 million for the quarter, slightly higher than the $13.2 million net loss in the same period last year. Just last month, the company had plans to sell after receiving acquisition interest.

Even leading mining company Marathon reported Q2 revenue below expectations at $145.1 million, with its adjusted EBITDA turning from a profit of $35.8 million last year to a loss of $85.1 million.

In July, the CEO of Swan, a Bitcoin-focused investment platform based in California, announced that the company was withdrawing from its mining business, downsizing, and canceling its listing plans. Swan's managed mining division was established in July 2023, with plans to go public by the end of this year.

Decreased Revenue and Exploring New Paths

The primary reason for the decrease in revenue for publicly listed mining companies stems from the Bitcoin halving, which does not require much elaboration. The need for mining companies to issue additional shares for financing is also influenced by other factors, such as mining difficulty reaching historical highs and rising electricity costs.

According to statistics from Bitcoin Magazine, the difficulty of Bitcoin mining has reached an all-time high. As of the time of writing, the Bitcoin mining difficulty is 86.87 T, with the average hash rate across the network over the past week at 633.73 EH/s. Correspondingly, Bitcoin miners' income has also hit an annual low, with only $2.54 million on August 11.

In response, JPMorgan analysts pointed out that Bitcoin mining profitability fell to historic lows in August.

On the other hand, the electricity costs for mining companies are also increasing. The Bitcoin halving and rising mining difficulty have forced mining companies to enhance the performance of mining machines, increase the number of machines, and expand mining sites to maintain revenue, which inevitably leads to increased electricity consumption.

Due to the scarcity of electricity resources and environmental concerns, government departments are also attempting to raise electricity prices to pressure mining companies. For example, recent proposals from IMF executives suggested increasing electricity prices for cryptocurrency mining by 85%, while Paraguay's National Electricity Administration raised electricity fees for cryptocurrency mining operators by 14%.

The sharp decline in revenue and pressure from operating costs have led mining companies to continuously explore new paths for business development. For instance, there are recent cases where Bitdeer plans to issue $150 million in convertible bonds for data center expansion, and CleanSpark acquired 26,000 immersion mining machines from Bitmain for $167.7 million.

Additionally, mergers and acquisitions among mining companies are also occurring. For example, Riot Platforms acquired Block Mining for $92.5 million, CoreWeave intends to fully acquire Core Scientific, and Bitfarms is negotiating to acquire Stronghold Digital Mining for approximately $164 million.

Mining companies are not only enhancing their mining operations but are also attempting to pivot towards the AI sector. Already, there have been cases such as Core Scientific signing long-term contracts with CoreWeave, Hut8 announcing the commercialization of its AI business, and Bitdeer planning to acquire ASIC chip design company Desiweminer for $140 million in an all-stock deal.

The shift towards AI has shown significant results for mining companies, with their stock prices rebounding to varying degrees. However, from a long-term perspective, this still needs to be tested by the market. Clearly, these paths require substantial capital for mining companies to realize, which explains why they have been continuously engaging in large-scale financing.

Unlike in the past, some mining companies have begun to use the funds raised for investing in Bitcoin.

On August 12, Marathon Digital Holdings announced plans to privately issue $250 million in convertible senior notes, intending to use the net proceeds from the sale of the notes to purchase additional Bitcoin. Shortly after, news emerged that they had purchased 4,144 Bitcoins within 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 closely related to its performance, as its Q2 revenue fell short of expectations. Moreover, this year, it has made several efforts, such as acquiring a Bitcoin mining data center from Applied Digital for $87.3 million, collaborating with NiceHash to launch custom firmware optimized for the NiceHash mining platform, and introducing mining products like the MARAFW firmware and MARA UCB 2100 control board, but these measures have not significantly boosted the company's stock price.

Another mining company, CleanSpark, mined 494 BTC in July but only sold 2.54 BTC, increasing its reserves to 7,082 BTC.

Furthermore, a report from CryptoQuant indicated that the Bitcoin hash rate metrics suggest that the period of miner sell-offs has ended.

These phenomena indicate that publicly listed mining companies are raising funds through the issuance of convertible bonds and stocks to expand their market share and enhance their hash rates, but ultimately, they are still seeking 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 income sources to maintain competitiveness, with conventional methods including enhancing existing business capabilities, mergers, and adjustments in industry direction. However, Marathon Digital has boldly made a different choice from other mining companies by purchasing Bitcoin on a large scale.

In fact, the successful model of MicroStrategy is right in front of us, and the returns from increasing investment in Bitcoin by mining companies may not be lower than those from other businesses. Continuing to sell Bitcoin clearly will not help mining companies escape their current predicaments.