Bitcoin miner consolidation appears imminent as halving looms

As the bitcoin halving approaches, miner consolidation appears imminent.

Per-block rewards for BTC miners are set to decrease from 6.25 bitcoins to 3.125 BTC in mid-April. The event is expected to put financial stress on companies in the sector, likely spurring some to look for a lifeline.

Elliot Chun, a partner at crypto advisory firm Architect Partners, said he expects “meaningful” mining-related mergers and acquisitions (M&A) in the second half of 2024, and into next year.

“We have what I believe is a much healthier buyer set that has the capital, operating discipline and they want to be opportunistic with their growth expansions,” Chun told Blockworks. “And then on the flip side, some of the smaller mining groups are likely going to struggle.”

Hut 8 Mining and US Bitcoin Corp. closed a “merger of equals” in November. Marathon Digital more recently acquired sites in Nebraska and Texas, while CleanSpark bought three facilities in Mississippi.

But other deals could be in the cards in 2024.

Miners may consider mergers and acquisitions this year to reduce power costs, become more vertically integrated or raise capital, analysts at Galaxy Digital wrote in a Feb. 12 report.

“While fleet upgrades and joint ventures have been instrumental in enhancing operational resilience, miners unprepared for the halving may find themselves in a precarious position,” they added.

Indeed, the hash rate from a portion of application-specific integrated circuit (ASIC) models is expected to go offline as the halving changes the breakeven revenues for such machines.

Compass Point Research & Trading analyst Chase White previously told Blockworks that home retail miners, smaller private operations and miners in areas with higher power costs are particularly at risk of shuttering.

What the big players are looking for

Large mining companies that survived the last bear market have proven their resiliency, Chun said — adding he expects them to be “very inquisitive and active on the precipice with the halving.”

Salman Khan, chief financial officer of bitcoin mining giant Marathon Digital, said during a November earnings call that less efficient and undercapitalized miners were already looking to be acquired before the halving.

Marathon has an “ample amount of liquidity and optionality to strategically evaluate opportunities” that the upcoming event catalyzes, Khan said.

The company had $319 million in cash on its balance sheet and held 15,741 BTC, as of Jan. 31.

“We believe there will be many inorganic opportunities to acquire very low-cost assets, especially attractive power contracts in the potentially turbulent times ahead post the halving,” Marathon CEO Fred Thiel said on the November earnings call.

Price per megawatt, a site’s source of energy and the regulatory environment are just a few considerations when weighing acquisitions, according to Charlie Schumacher, Marathon’s vice president of corporate communications.

The efficiency of miners is another factor, as a lot of “old inefficient miners are up for sale,” he told Blockworks.

Meanwhile, rival company CleanSpark had $48.5 million of cash on its balance sheet, as of Dec. 31, as well as about $127 million worth of bitcoin.

The Las Vegas-based company considers electricity, site quality and community impact when making M&A-related decisions, chief communications officer Isaac Holyoak said.

“The number one consideration is reliable, abundant energy that has a good mix of generation sources, including low-carbon energy, at cost-effective prices,” Holyoak added.

The CleanSpark executive noted that machine efficiency is also crucial.

“We will rehabilitate sites, but we won’t take on old servers,” Holyoak told Blockworks. “We almost always bring in our own hardware and do not expect to acquire another company’s fleet unless it meets our strict efficiency standards.”

Riot Platforms, another mining giant, had nearly $600 million in cash on its balance sheet at the end of 2023, and an additional $300 million or so in bitcoin.

Core Scientific — second only to Marathon in deployed self-mining hash rate, at 18.6 EH/s as of Jan. 31 — emerged from bankruptcy last month after completing a $55 million equity rights offering.

A Riot spokesperson did not return a request for comment about potential M&A activity, while a Core Scientific representative declined to comment.

Could we see two large miners merge?

Hut 8 and US Bitcoin Corp. merged in November in what now-former Hut 8 CEO called “the largest M&A transaction that has ever transpired within our industry.”

Chun said he doesn’t expect any of the large publicly traded bitcoin miners to join forces around the halving — unless they operate in different regions.

“If you made it through this last cycle, I think you have confidence that [your] growth strategy, as well as your operating acumen, is very high,” he said.

More likely, Galaxy analysts wrote in their report, the better capitalized miners and more liquid miners with low debt levels could scoop up smaller miners. Private miners that are vertically integrated, or those with low valuations, may be attractive targets as well.

Acquiring mining sites could also continue as big miners look to house the hash rate they have acquired in recent months.

Riot Platforms has continued to buy mining machines in an effort to build up its hash rate to 100 exahashes per second (EH/s) over the long term, and others have done the same.

“Identifying such opportunities may prove challenging, as many energization timelines extend into 2025 [and 2026], and back orders for electrical infrastructure have lengthy lead times,” Galaxy analysts noted in their report. “However, 2024 is poised to be a pivotal year for turnkey sites which are ready to be filled with this new hashrate.”

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