Bitcoin miners are looking for cash as profits dry up and crypto markets fall

Bitcoin miners are increasingly opting to sell shares, turning to one of the least attractive options for raising money as profits dry up and higher interest rates make borrowing more expensive.

Core Scientific, one of the largest US publicly traded bitcoin miners, entered into a $100 million purchase agreement with B. Riley Principal Capital II in July.

Australian miner Iris Energy said in September it agreed to sell up to $100 million in equity to the same investment bank.

London-based Argo Blockchain decided earlier this month to issue shares at a discount to an unnamed investor for $27 million.

Bitcoin miners have been battered by low bitcoin prices, skyrocketing energy costs and fierce competition in the industry.

These firms had rushed to the stock market to raise money during crypto’s bull run, when investors expected bitcoin prices to rise and publicly traded miners were seen as an efficient way to invest in the sector.

Now, mining companies trying to issue new shares to cope with the ongoing decline in digital assets risk upsetting their shareholders, whose stakes end up being diluted.

Several major miners have already seen their share prices fall this year, with Core Scientific, and the US-traded shares of Iris Energy and Argo Blockchain plunging at least 78 percent so far this year.

The $2.35 million Valkyrie Bitcoin Miners ETF (ticker WGMI), which tracks several major public miners, is down 73% since its inception in February.

“Although it is painful for investors through further dilution, raising equity is one of the only ways to shore up a miner’s balance sheet to meet its financial obligations,” said Ethan Vera, chief operating officer of crypto mining services firm Luxor Technologies.

“The other option is to divest assets, which can be equally or more damaging to shareholders.”

Other less favorable options for raising equity include selling bitcoin at lower prices or facing bankruptcy, said Daniel Frumkin, head of research and content at crypto mining services firm Braiins.

Core Scientific, for example, sold about 85% of its bitcoin reserves since the end of March, the September update shows.

The firm had $29.5 million in cash at the end of September, down 77% from $128.5 million at the end of the second quarter.

The second quarter figure does not include $11.9 million in restricted cash.

A recent increase in mining difficulty, a measure of bitcoin miners’ computing power, deals another blow to companies looking to shake off the current slump.

A higher level of computing power will lead to lower mining revenue for already broke bitcoin miners.

And the more mining power there is, the less each bitcoin miner receives.

A handful of bitcoin miners have increased sales of their rigs to help them ride out the storm or at least trim their debt.

But firms that took out massive loans backed by the value of their mining machines are feeling the squeeze as prices of some of these popular rigs have fallen more than 80% since last November, when bitcoin hit a record high of $69,000, Luxor’s Vera said.

This also poses a major risk to their financiers, who are already under pressure with bitcoin lingering around $20,000 since June.

Lenders including Celsius Network and Asia-based Babel Finance are grappling with liquidity problems exacerbated by the crypto market crash earlier this year.

Another major crypto lender, Genesis, which also lends money to bitcoin miners, has said it is eliminating 20% ​​of its 260-person workforce, and its parent company had filed a $1.2 billion claim against bankrupt crypto hedge fund Three Arrows Capital.

“I don’t see lenders scaling back completely, but there is a clear focus by many lenders on ‘distressed’ miners who may be willing to accept adverse terms to avoid bankruptcy,” Frumkin said.

More miners are still turning to equity financing because some lenders have raised interest rates, said Matthew Kimmell, digital asset analyst at crypto research firm CoinShares.

To be sure, not all miners raise money from the stock market.

Riot Blockchain Inc., another major U.S.-listed bitcoin miner, is seeking approval from its shareholders to issue new shares, in part to scale up its operations.

It withdrew a similar appeal this summer. The firm received more than 700 coins between March and September, and it had $270.5 million in cash on hand at the end of the second quarter.

Still, shares are down nearly 74% year to date.

“To expand during the bear market, bitcoin miners need to raise capital,” said Jaran Mellerud, cryptomining analyst at Hashrate Index.

“Without raising equity capital now, these companies will not be able to fulfill their expansion plans, and some of the most indebted may even go bankrupt.”