Over the past seven months, the price of Bitcoin has fallen from its November high of $69,047 to a current level of $20,500 – a drop of $48,547 or some 70%. Bitcoin miners landed on the pavement harder, with some North American publicly listed miners down as much as 85% over the same period.
During 2021, the majority of Bitcoin miners were using a hodl strategy, meaning the would only sell Bitcoin as a last resort, in the belief that the value will intrinsically increase over time. Many were able to use this Bitcoin hodl as leverage to raise capital through debt or equity, or even transfer to other exchanges in return for a yield.
The strategy, miners have learned, only works until it doesn’t. Collapsing mining margins – shedding some 21.6% in the month of May alone across all publicly listed miners – are now making voluntary hodlers forced sellers at a low price.
We have seen more updates from a number of miners who have sold Bitcoin to pay for current operational and capital requirements. During the month of May, Core Scientific (CORZ) sold 2,598, Riot Blockchain (RIOT) sold 250 and Argo Blockchain (ARBK, ARB.L) sold 427 Bitcoin, according to data compiled by The Block Research.
The table below highlights the increase in selling by public miners year-to-date:
Bitfarms sells 1,500 Bitcoin
One such timely example from this week is Bitfarms (BITF), who has just released an update Friday informing of the sale of 1,500 Bitcoin and raising $34 million. These funds have been used to repay part of a credit-backed facility from Galaxy Digital (GLXY.TO) reducing the original total of $100 million to $66 million. The agreement with Galaxy was taken out on December 31, 2021 and is due to expire on June 30, 2022. The company is currently in discussions to renew this facility.
Alongside this transaction, the company entered a new $37 million equipment financing deal with NYDIG. The agreement provides equipment financing at an interest rate of 12% per annum collateralized by the miners at the Company’s Leger and Bunker facilities, funded as the assets are installed and become operational.
“We have proactively taken non-dilutive strategic actions to increase our financial liquidity and flexibility during this period of macroeconomic crypto challenges,” said Jeff Lucas, CFO of Bitfarms. “Now we are better positioned to opportunistically consider potential farm expansion or acquisitions that arise as a result of recent market conditions. Our strategy supports our focus on driving operational excellence and maintaining our position as one of the lowest cost producers in the industry.”
This sale comes only five months after the company actually purchased 1,000 Bitcoin at an average price of $43,200.
Contrary to many other miners stands Iris Energy. The New South Wales, Australia-based firm has adopted a totally different strategy than most other public miners by selling their Bitcoin mined on a daily basis. Their rationale for this is as follows:
- Self-funding for rapid growth of computing power
- Return on investment today is extremely attractive
- Reinvest Bitcoin today to generate more Bitcoin tomorrow
- Future optionality to hodl greater amount of Bitcoin, continue reinvesting or distributions to shareholders
- Less dilutive than raising equity to finance capex and opex
As margins collapse and Bitcoin becomes cheaper, this strategy is looking increasingly attractive. Still, hindsight is 20/20. It is fairly clear that more miners will be providing similar updates to the one released by Bitfarms today, assuming that Bitcoin stays in this current pricing range and other miners need funding for continued operations.