Treasury management is more imporant than ever.

With Bitcoin prices dropping – as low as $17,596 on June 18 – miners are in a tough spot. That is, if they did not prepare for the inevitable bear market well.

A number of miners have released strategy updates following the drop in the price of Bitcoin. Of the miners, Bitfarms (BITF) and Iris Energy (IREN) are perhaps the most important, given the wide divergence in treasury strategies between the two. As we shall see, Bitfarms was forced into a corner by a loan gone sour while Iris Energy enjoyed the sunshine provided by its conservative playbook.

Bitfarms margin called?

First the good: As of June 20, Bitfarms holds a cash balance of $42 million and 3,349 BTC valued at approximately $70.3 million. Apart from its 3,000 BTC sale proceeds, Bitfarms recently secured an additional $37 million facility collateralized by mining machines via NYDIG at 12% per annum.

And now for the bad. Bitfarms was recently forced to sell 3,000 BTC to pay back a quickly distressed loan. A $100m credit facility via Galaxy Digital (GLXY) procured in December 2021, Bitfarms was required to provide 140% of the value of the loan. The loan was collateralized by Bitcoin. Bitfarms was effectively forced into selling the Bitcoin as the value of Bitcoin dropped significantly – nearly half its hodl stash – to repay a total of $62 million of the loan. A balance of $38 million remains. Notably, the transaction comes only five months after the company purchased 1,000 Bitcoin at a total cost of $43.2 million.

Bitfarms CFO Jeff Lucas said that the company will continue to take action to enhance its liquidity, reduce its everage and strengthen the balance sheet. The company will also now sell a proportion of its daily mined Bitcoin as a source of liquidity, as it believes it is currently the best and least expensive method available.

Conservative Iris Energy

Iris Energy has been an industry-leading operator throughout 2022 with the highest operational uptime and efficiency achieved across a range of different weather conditions, when comparing self-reported figures across miners.

With a current hashrate of 1.165 EH/s utilizing 39 MW of power, Iris plans on growing to 3.7 EH/s by Q3 2022 and a further 4.3 EH/s total supported by 160 MW of power over the next six months, per its latest forecast.

The company went on to highlight that preparatory construction activities are intended to continue at the Childress project in Texas, USA, to preserve the opportunity to scale once market conditions improve. This growth target has been aided by a number of projects ahead of schedule at the Canal Flats and Mackenzie sites.

Source: Iris Energy

Traditionally, Iris Energy has adopted a strategy whereby it sells its mined Bitcoin on a daily basis, in a belief that using this funding to grow operationally at speed will then be in a position to buy more mining rigs and produce more Bitcoin. This strategy – in sharp contrast to the hodl strategy adopted by the majority of listed miners – may well prove to have been a good option in light of the decline in price of Bitcoin.

Moreover, the company continues to take a more conservative approach to its books by deferring additional major capital expenditure beyond 2022 in an attempt to preserve balance sheet flexibility. This is in contrast to the recent earnings and May monthly update, where the company had continued to reiterate its planned growth target of 15.2 EH/s by Q3 2023.

The company has explored multiple financing options recently and has determined that maintaining balance sheet flexibility is the prudent option during these challenging market conditions and available financial terms.

What lies ahead

The real challenge Bitcoin miners face is an understanding of when is the best time to sell their Bitcoin stack. The market is volatile, and the use of traditional financial concepts to predict accurate cryptocurrency price movements has proven difficult.

With dilution at current share price levels not an easy option for consideration, raising funds through debt and selling Bitcoin are the two remaining options.

Those miners who have taken out debt using Bitcoin as a collateral, like Bitfarms, are faced not only with meeting the cost of the interest and capital repayments, but faced with the lower price of Bitcoin. As Iris Energy seems to understand intuitively, the best protection is a strong balance sheet which will ensure these miners are in a prime position to navigate their way through the looks of a bear market.

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