Investors flock to Bitcoin Mining – Bitcoin Magazine
Bitcoin continues to trade well off record highs as the latest bear market continues, thanks to a series of macroeconomic shocks and strains. Bitcoin miners especially feel the pain of a depressed market, with the hash rate rising and the hash price falling.
Against this backdrop of doom and gloom, a growing group of investors are raising capital with the intention of lending to or investing in distressed mining teams. New capital grants can be just the solution to help companies struggling to survive the bear market. But for others, just throwing money at a failed business doesn’t solve anything. This article explores growing investor interest in distressed mining and discusses possible outcomes for these investments.
Bear Market Status Quo
It’s no secret that the bear market has gradually worsened for bitcoin mining companies, even though bitcoin has been trading in an area around $20,000 for the past few months. Some public bitcoin mining teams are facing delisting. Others are engaged in litigation. Some miners sell hardware to strengthen their balance. And a few are liquidating some of their reserves, selling more bitcoin than mine every month.
(Readers can find more data and analysis on the bear market in this previous article from Bitcoin Magazine.)
Investors Circle Bitcoin Miners
While some mining teams are suffering from a bear market, a growing group of investors are seeing opportunities. Some of these investors are completely new to the mining industry. For example, Maple Finance — a decentralized finance team primarily focused on Ethereum and Solana, according to its website — launched a $300 million lending pool aimed at struggling bitcoin miners in need of more capital. Peter Thiel also recently led a $3.7 million seed round for Block Green, a new lending protocol also aimed at miners who need access to more capital.
Some of the investors raising funds to target the mining industry are significantly more experienced. Binance announced a $500 million fund to support distressed bitcoin mining teams. This monstrous crypto conglomerate currently operates the world’s fourth largest bitcoin mining pool in addition to the world’s largest exchange platform. Jihan Wu, the bitcoin magnate who co-founded Bitmain, also announced plans for a $250 million fund to buy distressed mining assets.
Notably absent from this list of crypto moguls eyeing the mining sector is FTX founder Sam Bankman-Fried. On Twitter, “SBF” put to rest speculation that he and his team were interested in mining investments saying they “don’t really look into the room.” But he is reportedly considering bidding for bankrupt Celsius Network’s assets, which could include a now-bankrupt bitcoin mining unit into which the troubled company poured roughly $500 million.
In total, over $1 billion from these public announcements alone is sitting on the sidelines waiting to lend to or invest in distressed mining operations. Beyond these funds, other private investors are scrambling for cheap mining investments. According to Foundry, the industry’s largest provider of full-spectrum mining services, they are bombarded with inquiries every week from interested buyers.
“We have several inquiries a week from institutional investors looking to buy distressed mining assets,” the company said.
The Upside of Bitcoin Mining
Not everyone is in a hurry to throw money at mining. For many financial services providers looking at the space, the general consensus (backed by plenty of mining data) is that “the market has fundamentally changed.” Against the persistent uncertainty of the global economy and the harsh macroeconomic headwinds driven by record inflation in almost every major economy, the risk of jumping into bitcoin mining remains high. This is probably one reason why CEOs of major banks have clearly stated that they do not plan to finance mining.
But the long-term upside for mining is undeniable. In fact, as long as bitcoin itself has long-term upside potential, so does the mining sector. This is partly why even traditional investment banking analysts have publicly noted several times over the past year that mining investments are becoming more attractive to them as the bear market continues.
Several mining companies are already moving to claim some of these opportunities through mergers, acquisitions and even public listings. Crusoe Energy, one of the industry’s leading teams using flare gas to mine bitcoin, recently acquired Great American Mining (GAM), which also uses stranded oil and gas to mine bitcoin. CleanSpark also bought an 80 megawatt turnkey mining site from Mawson. Rhodium announced its plans to go public via a reverse merger at a valuation of $1.7 billion. And PrimeBlock, another mining company, announced plans to also go public via a $1.25 billion special purpose acquisition company (SPAC) merger.
More money, more problems
Although a bear market offers far better opportunities to start mining compared to the hype of a bull market, the ugly truth for many new mining investors is that more money will not solve most problems. Throwing money at a troubled mining operation is no panacea. And weak balance sheets are often a symptom of deeper problems, making the path from distressed to solvent far from easy. In a bull market, mistakes are easy to overlook, but also easy to correct because the market is much more forgiving. In a bear market, mistakes are exponentially more expensive and harder to undo.
For beginners seeking their first exposure to the mining industry, investing in distressed mining assets can provide some tough lessons about how the mining industry works and why these companies struggle in the first place. But smart investors will no doubt learn quickly. The business of bitcoin mining has only become more competitive and less profitable (per unit hash rate) with each passing year. Whether or not these financiers salivating over investing in mining have what it takes to win will be an intriguing question to answer as the bear market continues.
This is a guest post by Zack Voell. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
