A look back, and ahead as the halving looms

Though a number of bitcoin miners have historically run into financial trouble, some segment observers have said the space’s larger players are likely to survive the upcoming halving.

Industry consolidation appears very likely, however, as some mining companies are expected to struggle more than others. Still, many such firms have prepped extensively for the halving and remain hopeful — at least publicly.

Set for just over a week from now, the 2024 bitcoin halving represents a point when per-block mining rewards are set to drop from 6.25 BTC to 3.125 BTC — putting additional pressure on miners and their bottom lines.

A number of mining companies, in anticipation, have sought to strengthen their balance sheets, deploy more efficient machines and diversify revenue streams.

Read more: The Bitcoin halving is just weeks away — here’s how miners have prepared

Industry giants such as Marathon Digital and Riot Platforms seem to have a clear edge over most peers, given their balance sheets consisting of more than $1 billion each in combined cash and BTC.

Chase White, a senior analyst at Compass Point Research & Trading, previously said private miners without easy access to public markets capital are more likely to have to shutdown operations in the aftermath of the per-block mining rewards cut.

Despite expecting “pain for everyone,” White added that miners with low or no debt, bottom quartile power costs and efficient mining fleets are likely to be fine.

Not all mining companies fit those criteria.

And so, the question remains which such firms will come out on the other side of the halving intact, and stronger.

Past financial troubles for miners

Several sources had trouble coming up with any major miners hurt badly by the last halving event four years ago.

But unlike the previous two halving events in 2016 and 2020, the 2024 halving event may result in a wave of consolidation and defaults across the matured space, according to Kayla Joyce, an associate at law firm Holland & Knight.

She did not disclose which she believes might be most at risk.

Read more: Bitcoin miner consolidation appears imminent as halving looms

“The 2020 halving seemed to have less of an impact because the bitcoin mining industry was a smaller space prior to the 2021 crypto bull market,” Joyce told Blockworks. “Investors only started pouring money into the industry in 2021.”

Rather than around the 2020 halving, hardship across the mining sector occurred as a result of the 2022 crypto winter, which followed mining firms accumulating substantial debt to fund aggressive growth initiatives.

Crypto mining data center operator Compute North filed for bankruptcy in September 2022 after raising $385 million in debt financing that February. The company said in bankruptcy filings at the time that it owed as much as $500 million to at least 200 creditors.

Core Scientific then filed for bankruptcy in December 2022. It noted at the time that while its cash flow was positive, it was insufficient to repay an equipment financing loan.

The Texas-based company emerged from bankruptcy in January — reducing its net debt to $571 million by converting equipment lender and convertible note holder debt to equity.

Core Scientific CEO told Blockworks last month that going forward, the company intends to be more “pragmatic” on its infrastructure growth strategy and more “opportunistic” on the machine purchase side.

Read more: Core Scientific CEO: Machine buys, deleveraging key around Bitcoin halving

Though Argo Blockchain did not go bankrupt amid the 2022 bear market, the London-based firm said late that year it was looking to avoid such a fate despite holding “insufficient cash” to sustain operations for much longer.

Argo mined 103 bitcoins last month and held digital assets worth the equivalent of 26 BTC ($1.82 million), as of March 31. The company also last month closed on the sale of its facility in Mirabel, Quebec for $6.1 million.

It used the proceeds of the sale to repay the Mirabel facility’s remaining mortgage of $1.4 million and also paid back a portion of its outstanding debt to Galaxy Digital. Argo still owes Galaxy $12.8 million, down from its original $35 million debt balance to the company.

Overall, the company reduced its debt by $12.4 million during the first quarter, Argo Blockchain CEO Thomas Chippas said in a statement.

He added: “As we approach the halving, we continue to focus on streamlining our operations and running as efficiently as possible.”

A look at hash cost, miners’ fate this time around

A look at hash price and hash cost of public mining companies is one signal that some are better positioned than others heading into the halving.

Hash price — taking into account bitcoin price, network difficulty, block subsidy and transaction fees — measures how much a miner can expect to earn from a specific quantity of hash rate. It is positively correlated to BTC price changes and negatively linked to fluctuations in bitcoin mining difficulty.

Hash cost is essentially the same as hash price but comes from a different perspective — measuring the cost for a miner.

Reducing hash cost — via improving efficiency by deploying newer machines or securing lower energy rates — has been a key focus for the segment’s firms as the halving looms.

The hash price for bitcoin stood at roughly $118 per petahash per second (PH/s) on Friday, according to Hashrate Index data.

That hash price will be cut in half after the halving, noted Wolfie Zhao, head of research at TheMinerMag — currently meaning just under $60 PH/s.

“In that scenario, most of the mining companies would still be mining with a gross profit, albeit much less than before,” he told Blockworks.

[TheMinerMag chart found in the in-progress thread]

Some of the publicly traded miners with a higher hash cost don’t have much debt on their balance sheet, Zhao noted. Companies with elevated debt-to-equity ratios — such as Greenidge, Terawulf and Stronghold Digital — are on the lower end of the all-in hash cost scale, he added.

“So it looks like most of the public miners will survive the halving after having survived the highly levered bear market of 2022,” Zhao said.

Companies remain confident despite challenges

Bit Digital and Bitfarms had higher total hash costs than competitors during the fourth quarter, according to TheMinerMag data — amounting to about 74.2 PH/s and 70.3 PH/s, respectively.

Bit Digital CEO Sam Tabar told Blockworks in an email that the company plans to double the size of its fleet by the end of the year with more efficient miners.

The company may consider owning a portion of its hosting infrastructure to lower production costs. That decision “depends on the opportunity set and corresponding returns profile,” he added.

Beyond that, the company in October launched a business line focused on supporting artificial intelligence workstreams.

“The margins are substantially better than our mining margins, and helps absorb all of our fixed overhead costs, making us more resilient to hash price volatility,” Tabar said.

Bitfarms Chief Mining Officer Ben Gagnon said the company’s low-cost power contracts and energy efficiency will keep it profitable post-halving.

The Canadian miner agreed to buy nearly 36,000 Bitmain machines in November as part of what it called a “transformative fleet upgrade.” That process will help the company more than triple its hash rate and improve its energy efficiency by about 40%.

“With this plan we are strongly positioned to thrive and take advantage of what we believe will be the most bullish post-halving market the industry has ever seen,” Gagnon told Blockworks.

Joe Flynn, an analyst at Compass Point Research and Trading, wrote in an April 9 research note that Stronghold Digital Mining goes into the bitcoin halving “in a more difficult position relative to other miners” due in part to its debt and limited access to capital markets.

Stronghold’s infrastructure and access to power is valuable, however, Flynn noted, as companies will need such resources to plug in the hoards of mining machines they have already ordered. He added that selling some of that infrastructure could boost Stronghold’s stock, which was down about 48% year to date, as of Friday morning.

“We ultimately think there’s value in its assets that could be taken out through [mergers and acquisitions], as there is ability to take out [general and administrative expense] and lower Stronghold’s high overhead as a current small public company,” Flynn wrote.

Stronghold CEO Greg Beard told Blockworks that if Stronghold is deemed an attractive M&A target by an industry peer, such a deal would be “something to consider.”

“Generally speaking, companies that are misunderstood by the public market that have actual attributes and value that can be valued by other public companies … tend to be realized in that way.”

Despite its debt, Stronghold’s vertically integrated structure gives it levers to pull around the halving, Beard said.

The company, for example, last month turned off operations at one of its Pennsylvania plants to instead import electricity due to low power prices. It intends to keep that in effect “until it becomes economically compelling to run it relative to purchasing electricity,” the company said in a news release.

“I think the challenge for a lot of miners is that if their power contracts are structured in a difficult way, they’re forced to buy power at a negative margin,” Beard said. “We don’t have that issue.”

While Stronghold is a potential target to be acquired post-halving, Applied Digital has already been on the sell-side of pre-halving deals — agreeing to sell its facility in Garden City Texas last month to Marathon for $97.3 million.

Read more: ADDMARATHON Q&A LINK WHEN PUBLISHED

Applied Digital CEO Wes Cummins said in a statement the company is set to focus on building out its HPC data centers.

“This strategic transaction represents a purposeful pivot, equipping the company to allocate financial and operational resources toward strategic sites in North Dakota, as well as bolstering our balance sheet strength,” Cummins said.

The company declined to comment further about its post-halving strategy.

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