Crypto Miner Consolidation Imminent as Some Industry Players Struggle

As more miners report dire financial pressures from low crypto prices, high energy costs and debt, a resumption of consolidation is inevitable, industry watchers have said.

After Core Scientific revealed in filings last week that it was considering bankruptcy, Argo Blockchain became the latest major bitcoin miner to reveal financial pressures, saying a planned capital injection of $27 million had failed.

A company spokesperson declined to comment.

As small and medium-sized companies struggle, large mining rig operators have expressed interest in buying opportunities. Possible acquirers include Marathon Digital, which previously said it was more focused on organic building than buying.

“We like to have an agile strategy…and the capitalization to be able to take advantage of opportunities like this,” Fred Thiel, CEO of Marathon Digital, told Blockworks.

Thiel declined to say whether the company has committed to Core Scientific or Argo, but he said Marathon will keep an eye on cheap hosting assets.

“Would Marathon participate, eventually, in the purchase of a hosting site? Thiel said. “Yeah, if the price is absolutely attractive. Or if it made strategic sense.

Argo Blockchain the last stress miner

Argo Blockchain said on Monday it no longer expects to receive the $27 million inflow of capital it expected from a “strategic” investor, which it declined to name. The capital was to be used in part for capital expenditures for continued construction of its flagship Helios facility in Dickens County, Texas. It is not known why the funding failed.

As Argo Blockchain explores other funding opportunities, the company sold nearly 4,000 new Bitmain S19J Pro machines to raise $5.6 million.

“If Argo fails to complete additional financing, Argo would become cash flow negative in the near term and would have to scale down or cease operations,” the company said.

NYDIG agreed in May to loan Argo up to $70.6 million to recapitalize the purchase of digital asset mining equipment for the Texas facility. It’s unclear if NYDIG was to provide the additional $27 million.

A NYDIG spokesperson did not immediately return a request for comment.

The move comes after Core Scientific said in filings last week that it would skip upcoming payments as it faces liquidity and operational issues. The miner said he hired advisers as he considered his options, including seeking relief through bankruptcy.

Crypto-mining data center operator Compute North filed for bankruptcy in Texas in September. The company owes up to $500 million to at least 200 creditors, according to a petition filed with the Southern District of Texas bankruptcy court.

Will miners survive the ‘perfect storm’ of pressures?

Chase White, an analyst at Compass Research & Trading, said in a research note published Tuesday that the company had lowered its price target for Argo from $4.50 to $1.

The stock price was $0.90 at 3:00 p.m. ET on Tuesday, down about 93% year-to-date and down 19% on the day.

“We believe [Argo] probably has enough cash to stay afloat for the next two quarters,” White said. “Part of the reason we thought [Argo] was in the process of raising share capital was to have sufficient cash to enter into a fixed price power purchase agreement (PPA) for its [Texas] opportunity to control electricity costs, which now seems to be irrelevant. »

Glyn Jones, CEO of Icebreaker Finance, said too much of the industry was focused exclusively on debt-fueled growth in 2020 and 2021 – while paying less attention to the cost of production.

Icebreaker launched a miner loan pool in September that it called “vertically integrated and positioned for success.” The loans, with interest rates between 15% and 20%, have a term of 12 to 18 months and are secured by assets such as mining rigs, power transformers and digital assets.

“We estimate that less than 25% of US hashrate is operating with the financial resilience to weather the full range of credible scenarios, including further hash price deterioration,” Jones told Blockworks. “More than perhaps any other industry, its economics dictate that only the most efficient operators will survive in the long term. No miner has greater pricing power, so it’s all about the cost of production.

Rising bitcoin mining difficulties and associated costs — along with looming debt — have created “a perfect storm” for many miners, Thiel said. He added that about 20 public miners could be at risk of bankruptcy due to current market conditions.

“If you were to look across the industry and [see] who has equipment financing, those are the ones with the highest risk today,” Thiel said. “Or those with a lot of debt service to do.”

Healthier miners seek buying opportunities

Bill Cannon, head of portfolio management for digital asset fund manager Valkyrie Investments, said the strongest companies in the mining space are likely to strengthen their positioning through cut-rate acquisitions.

Cannon expects mergers and acquisitions to pick up again this quarter and early next year as companies on the verge of insolvency scramble to retain at least some shareholder value — and keep their doors open.

“Consolidation is inevitable,” Cannon said. “All industries go through this, and we believe that the remaining miners will benefit from this period, in the same way that the Amazons and Googles of the world did after emerging from the ashes of the dot-com boom.”

Jason Les, CEO of Riot Blockchain, told Blockworks that his company is one of the “best positioned acquirers” in the industry. A number of companies, Les added, will go bankrupt or exploit the private markets and associated leveraged buyouts.

Those considering bankruptcy may want to take this route sooner rather than later, Thiel said.

“If you’re close to the risk of doing it, you better hurry,” he said. “The buyers of your assets are going to run out of money, because there are so many people ahead of you who are bankrupt.”

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  • Ben Strack

    Ben Strack is a Denver-based journalist who covers macro and crypto-native funds, financial advisors, structured products, and the integration of digital assets and decentralized finance (DeFi) into traditional finance. Prior to joining Blockworks, he covered the asset management industry for Fund Intelligence and served as a reporter and editor for various local Long Island newspapers. He graduated from the University of Maryland with a degree in journalism. Contact Ben by email at [email protected]

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