US bitcoin miners are accumulating war chests of the cryptocurrency to help them withstand tightening margins as competition for resources intensifies.
Companies including Mara Holdings, Riot Platforms and CleanSpark have used the soaring price of bitcoin, which hit $100,000 last month, to raise more than $3.7bn from investors since November, which they have then used to fund the purchases of the coins. They have often raised the funds through zero — or near zero — coupon convertible notes.
Their moves comes in the wake of Donald Trump’s election victory, with the incoming US president having promised that bitcoin would be “mined, minted and made in the USA”.
But, for many, the headlong rush to buy more of the currency they are also mining comes down to protecting themselves against further financial pressure from high energy costs.
“It’s not as simple as the price of bitcoin has gone up and everyone’s happy,” said Russell Cann, chief development officer at Core Scientific. “Complex challenges still remain around profitability and access to the grid.”
The miners’ ambitious plans, which also include expanding capacity for artificial intelligence, mark a sharp reversal of outlook for the industry, which has struggled over the past eight months after the reward they receive for mining bitcoin halved.
Miners compete with each other to validate blocks of new transactions in bitcoin, making them a crucial link in ensuring the bitcoin network is secure and reliable.
The computer programs that run the bitcoin network are designed to halve the reward available to miners every four years. The latest, in April, cut the spoils on offer for miners from 900 to just 450 coins a day.
CoinShares, the investment group, estimated that the average cost to produce one bitcoin for all US-listed miners rose to $55,950 in the third quarter, up 13 per cent on the previous quarter. Including depreciation and stock-based compensation charges, the average cost to produce a bitcoin was $106,000. On Monday the cryptocurrency was trading at about $102,175.
“If the price didn’t rise, then we would have started to see quite a few start to turn rigs off or go bust,” said James Butterfill, head of research at CoinShares.
But the soaring price of bitcoin has pushed up one gauge of mining profitability, known has the hash price, which has risen 32 per cent since Trump’s victory. That glimmer of hope has prompted many miners to return to capital markets in search of fresh funds.
Some, such as Mara and Riot, are now taking their lead from MicroStrategy, a software group turned bitcoin purchaser that has led the way in issuing long-term convertible bonds to buy bitcoin. Miners are also promising to make the cryptocurrency the reserve asset for their corporate treasuries, increasing their bitcoin reserves and retaining all the new coins they mine.
“This ‘Trump bump’ has essentially given us more impetus to continue to invest in the US,” said Fred Thiel, chief executive of Mara Holdings. Its business model now is to “accumulate as much bitcoin as [we] can”. It now has nearly 45,000 bitcoin, worth more than $4.4bn.
Asher Genoot, chief executive of Hut 8, considers his company an “energy infrastructure” group with bitcoin as the financial base of its balance sheet.
In two months the industry has ploughed some $1.8bn of what it has raised into buying bitcoin.
However, the pressure on the miners has not abated. The collective amount of computing power required to secure the network, known as the hash rate, has continued to climb as new entrants come into the market. It hit an all-time high on Friday. The rising rate threatens to counteract the benefits of bitcoin’s price increase, further squeezing corporate profits.
“We are seeing a stratospheric rise in the bitcoin hash rate, highlighting a massive amount of new hardware coming online, making those at the higher end of cost of production much more vulnerable if we see a price correction,” Butterfill said.
The US industry is also facing fierce competition for resources at home. It has long been under pressure to justify its energy usage. The US Energy Information Agency estimates mining may already use 2.3 per cent of the country’s grid, although, with limited access to data, predictions vary.
The Bitcoin Energy Consumption Index estimates that bitcoin trading at around $100,000 uses the same annualised energy as Poland.
Utility regulators in Texas demanded in November that all data centre facilities that consume more than 75MW provide annual energy data. The state is the largest in the US for crypto mining and authorities are predicting that demand for energy from large users will jump 60 per cent in 2025.
Executives say the bigger challenge comes from large-scale AI developers who have greater financial resources than miners.
“Artificial intelligence demand in the US is going to greatly affect how much bitcoin mining can be added to the grid,” said Core Scientific’s Cann, who predicted that the majority of computing power for bitcoin in coming years would be outside the US.
“It’s just math to say: is [the grid]’s best use as a bitcoin mining facility, or as an AI data centre? And right now, from an economics perspective, it’s going to be AI,” said Cann.
Mara aims to offshore half of its mines by 2028, expanding in places that have surplus energy such as Kenya, the United Arab Emirates and Paraguay.
But others are trying to finder faster routes to profits by riding the AI wave. The Nvidia graphic processing units used for cryptocurrency mining also lend themselves to handle the vast quantities of data for AI. Hut 8, Core Scientific and Hive have all pivoted to leasing their data centre capacity to artificial intelligence hyperscalers.
“Yes, bitcoin’s up, and it really helps, but if energy prices were to spike tomorrow, it’s still a tough day to be a bitcoin miner,” said Zach Bradford, chief executive of CleanSpark, a US-listed cryptocurrency miner.
