Crypto Billionaire Jihan Wu Aims to Raise $200 Million to Buy Assets from Struggling Bitcoin Miners
Wu Jihan, co-founder of Bitmain Technologies Ltd., speaks at Shape the Future: Blockchain Global … [+]
Digital mining company Bitdeer Technologies Holdings, led by crypto billionaire Jihan Wu, is trying to raise $200 million from outside investors to buy discounted hardware despite strong headwinds for the mining industry and a frosty outlook from Wall Street.
Wu is the co-founder of the world’s largest bitcoin mining chip company, Bitmain. After settling a long-running disagreement with the other co-founder, Micree Zhan, Wu took control of spin-off Bitdeer. The company will start its acquisition plans with a $50 million investment and aims to raise another $200 million from outside investors such as family offices, venture capital firms and investment funds, as reported by Bloomberg.
Raising money for cryptomining is an ambitious – perhaps bold – goal given the declining interest in the business from traditional financial players. In 2021, the list of listed mining companies grew rapidly, ending the year with 16 operations on the Nasdaq. Today, the top three listed mining companies by market capitalization – Marathon, Riot and Core Scientific – are down year-to-date by 70%, 69% and 87% respectively.
Bitcoin
Last year, when bitcoin’s price hit an all-time high, miners adopted aggressive growth strategies and ordered more mining machines. However, these units usually take at least six months to arrive and are paid off through three installments. With bitcoin down 56% year-to-date and electricity costs rising globally, mining margins have shrunk and many miners don’t have cash on hand to complete their contracts.
“It’s the last payment that’s the sticking point because a lot of these companies have used all their cash to pay for the first and second tranches, but when the final payment is due, they don’t have the cash anymore,” DA Davidson analyst Chris Brendler said. “It’s very attractive for buyers to come in and say ‘hey, I’m buying that contract, don’t let it go into default’.”
A calculation called the hash price captures the daily income per unit of mining power. The hash price has fallen by over 57% since last year, reducing the value of bitcoin miners. A falling hashish price, rising energy costs and panic selling of machines suggest that the value of these computers must fall further. At the same time, the machine sale gives the well-capitalized companies an 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 terms of declining competition, and it’s not just that power costs have gone up and the bitcoin price has gone down, it’s also the third part of the capital markets, you can’t raise money to build a bitcoin operation today,” says Brendler. “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 take advantage of 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 $67.6 million.
Bitdeer applied to go public via an agreement 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 December 14. Despite the setbacks, Blue Safari’s price has been steadily rising since the start of the year, which seems counterintuitive in a market soured on SPACs and shivering through a crypto winter. At the time of writing, Blue Safari is trading at $10.26 and is up 3% year to date.
