Digital mining company Bitdeer Technologies Holdings, led by crypto-billionaire Jihan Wu, is attempting to raise US$200 million from outside investors to buy discounted hardware despite strong headwinds for the mining industry and an icy outlook from Wall Street.
Wu is the co-founder of the world’s largest computer chip company for bitcoin mining, Bitmain. After settling a lengthy disagreement with the other co-founder, Micree Zhan, Wu took control of spin-off Bitdeer. The company will start its acquisition plans with a US$50 million investment and aims to raise an additional US$200 million from outside investors like family offices, venture capital firms and investment funds, as reported by Bloomberg.
Raising money for crypto mining is an ambitious – perhaps audacious – goal given falling interest in the businesses from traditional financial players. In 2021, the list of publicly listed mining companies was quickly growing, ending the year with 16 operations on Nasdaq. Today, the top three publicly listed mining companies by market capitalization—Marathon, Riot and Core Scientific—are down year-to-date by 70%, 69% and 87%, respectively.
Bitcoin mining is a costly endeavour requiring large amounts of computing power to be the first to solve complex mathematical problems and win the opportunity to process a transaction for the network—and earn the bitcoin payout. Mining operations crop up where electricity is cheap and when the price of bitcoin is high. That makes it easy to turn a profit by processing transactions for the network, earning bitcoin rewards. Bitdeer has mining operations in the US and Norway.
Last year, when bitcoin’s price reached its all-time-high, miners adopted aggressive growth strategies and ordered more mining machines. However, these units typically take at minimum six months to arrive and are paid off through three installments. With bitcoin down 56% year-to-date and the cost of power on the rise globally, mining margins have shrunk and many miners do not have the cash on hand to finish out their contracts.
“It’s that last payment is the stickler because a lot of these companies have used all their cash to pay for the first and the second tranche, but then when the final payment comes due, they don’t have the cash anymore,” D.A. Davidson analyst Chris Brendler says. “It’s very attractive for buyers to come in and say ‘hey, I’ll buy that contract, don’t let it go to default.’”
A metric called the hash price captures the daily revenue per unit of mining power. Hash price has fallen by over 57% since last year, bringing down the value of bitcoin-mining machines. A declining hash price, rising energy costs and panicked selling of machines suggests the value of these computers has further to fall. At the same time, the machine sell-off provides those well-capitalized companies with efficient mining infrastructure (read: power purchase agreements) in place an opportunity to grow as the market consolidates.
“There’s a downside protection to these companies in the form of falling competition, and it’s not just that power costs have gone up and bitcoin price has gone down, it’s also that third piece the capital markets, you can’t raise money to build a bitcoin operation today,” Brendler says. “You can try if you’re Bitdeer, but it’s pretty hard to convince investors to do that today.”
CleanSpark is another example of a bitcoin miner moving to capitalize on cheaply available equipment. Between August and September, CleanSpark acquired two mining facilities in Georgia from Mawson Infrastructure Group and Waha Technologies. The combined value of the acquisitions was US$67.6 million.
Bitdeer filed to go public via a deal with a special-purpose acquisition company (SPAC) called Blue Safari Group Acquisition Corp. in November 2021, but the deal has since been pushed back twice with the new date set for Dec.14,. Despite the setbacks, Blue Safari’s price has been steadily on the rise since the start of the year, which seems counterintuitive in a market that has soured on SPACs and is shivering through a crypto winter. At the time of writing, Blue Safari is trading at US$10.26 and is up 3% year-to-date.