Part 1 of 2
Public Bitcoin miners effectively have three primary levers to raise capital:
- Equity Offerings: By issuing new shares, both publicly and privately, miners can raise funds from investors in exchange for ownership stakes in the company. This approach dilutes existing shareholders but provides immediate access to capital.
- Debt Financing: Miners can issue bonds or take loans, raising capital without diluting shareholder equity. However, this method involves interest payments and financial obligations, which can impact cash flow.
- Selling Bitcoin Reserves: Public miners often hold mined Bitcoin on their balance sheets. They can liquidate these reserves to raise cash, although this reduces their cryptocurrency holdings and potential future gains.
A Critical Growth Lever for Bitcoin Miners
In the rapidly evolving world of Bitcoin mining, companies constantly seek innovative ways to scale their operations, upgrade technology, and optimize their energy use. While mining efficiency and energy costs remain key factors, the availability of capital plays an equally crucial role. One increasingly popular mechanism that many Bitcoin miners have adopted to secure the capital needed for expansion is At-the-Market (ATM) share offerings. ATMs offer miners a flexible and efficient means of raising funds without causing significant disruption to share prices or market sentiment. This financial tool has emerged as a critical lever for Bitcoin miners to grow, scale, and remain competitive in an industry marked by rapid technological advancements and volatility in the price of Bitcoin.
What Are At-The-Market Share Offerings?
An ATM share offering is a financial instrument that allows publicly listed companies to issue new shares incrementally into the market at prevailing prices, rather than in large blocks as is typically done in traditional equity raises. The major advantage of ATMs lies in their flexibility. Rather than issuing a substantial number of shares at once, companies can strategically time their sales based on market conditions, minimizing dilution and price disruption. This method allows companies to tap into new capital when they need it most, all while giving them control over the timing and pricing of the share issuance.
For Bitcoin miners, who face fluctuating revenues due to the volatility of Bitcoin prices and network difficulty, the ability to raise capital on an as-needed basis can be extremely beneficial. ATMs allow them to fund their growth initiatives without being forced to issue shares at potentially unfavorable prices, which can harm shareholder value.
Why ATMs Are Essential for Bitcoin Miners
1. Funding Infrastructure Expansion
Bitcoin mining is capital-intensive, requiring substantial investments in hardware, infrastructure, and energy procurement. The most efficient miners deploy cutting-edge Application-Specific Integrated Circuit (ASIC) machines, which can cost thousands of dollars each. Miners also need large-scale data centers, electrical infrastructure, and cooling systems to ensure the machines run efficiently. In a market where technological upgrades can make or break profitability, having the capital to continuously upgrade equipment is crucial.
2. Managing Energy Costs and Sustainability Initiatives
Energy costs are one of the most significant expenses for Bitcoin miners. Since mining requires large amounts of electricity, miners are often at the mercy of fluctuating energy prices, which can drastically affect their profitability. Many miners are exploring renewable energy sources, such as hydroelectric, solar, and wind power, to reduce costs and mitigate environmental impact.
ATMs enable miners to raise the capital necessary for investing in sustainable energy solutions. Riot Platforms (RIOT), a major player in the Bitcoin mining space, has successfully used ATM offerings to fund its expansion into renewable energy. The company raised millions through ATM share offerings to fund its Texas-based mining operations, which use low-cost renewable energy and was able to improve operational efficiency while aligning with the growing demand for sustainable practices.
3. Scaling During Market Volatility
Bitcoin’s notorious price volatility significantly impacts mining profitability. When prices decline, mining operations often become less profitable or even unprofitable, forcing companies to seek capital to cover operational costs. Traditional financing during such downturns is challenging, as lenders and investors may demand higher returns due to the increased risk or may avoid providing financing altogether.
ATMs offer a unique solution, allowing miners to raise capital during periods of high Bitcoin prices when investor sentiment is strong. This flexibility helps avoid debt or shareholder dilution during unfavorable market conditions. Core Scientific (CORZ) effectively utilized its ATM facility during Bitcoin's 2021 bull run to fund expansion and increase its hash rate capacity. However, by December 2022, the company entered Chapter 11 bankruptcy due to falling Bitcoin prices and the devaluation of collateralized Bitcoin assets, rendering it unable to meet creditor repayments.
4. Strengthening Balance Sheets and Debt Reduction
Maintaining a strong balance sheet is critical for Bitcoin miners, especially during periods of market downturns. ATMs provide miners with an alternative to taking on debt, which can be risky, especially given the volatility in the cryptocurrency market. By issuing equity incrementally, miners can raise the capital needed to strengthen their balance sheets, reduce debt, and improve financial flexibility.
For instance, Marathon Digital Holdings (MARA), one of the largest publicly traded Bitcoin miners in North America, used ATM offerings to pay down debt and improve its liquidity. This strategy has allowed the company to maintain a healthy balance sheet while continuing to scale its operations. In volatile market environments, reducing debt through equity financing can provide miners with the resilience needed to survive and thrive during these periods of low Bitcoin prices.
Drawbacks to the use of ATMs
Bitcoin mining companies using ATMs offerings to raise cash for growth can pose several disadvantages to shareholders. One major drawback is the potential for dilution of shares. In an ATM offering, the company issues new shares directly into the market, which increases the total number of shares outstanding. As a result, existing shareholders may experience a reduction in the value of their holdings, as their percentage of ownership in the company decreases.
Additionally, an ATM offering can put downward pressure on the stock price. As the company continuously sells shares in the open market, it can flood the market with excess supply, leading to a decrease in demand and consequently driving the stock price down. Shareholders may see the value of their investments decline, which can erode investor confidence.
The timing of ATM offerings can also affect shareholder sentiment. If investors perceive the company as relying heavily on ATM offerings to raise capital, they may view it as a sign that the company is struggling to generate sufficient cash flow internally or through other financing means. This perception could lead to negative market reactions, further reducing the stock price.
In summary, while ATM offerings provide flexibility for raising capital, they can negatively impact shareholders through dilution, stock price pressure, and a potential loss of confidence in the company's financial health.
Private Investment in Public Equity (PIPE)
A Private Investment in Public Equity (PIPE) allows companies to raise capital quickly by selling shares to private investors, often at a discount. Its advantages include faster access to funds, as PIPE deals bypass the lengthy regulatory processes of traditional public offerings. They are more discreet, helping reduce market volatility, and offer flexibility in structuring the transaction (e.g., issuing common shares or convertible securities).
Additionally, PIPEs often attract institutional investors, signaling market confidence and potential strategic partnerships. With fewer regulatory requirements and controlled dilution, PIPE transactions are an efficient capital-raising tool for public companies, especially during urgent financial needs.
In May, 2024, Bitdeer Technologies (BTDR) announced that it entered into a subscription agreement with Tether International Limited(“Tether”) for the private placement of 18,587,360 Class A ordinary shares, generating $100 million of revenue and a warrant to purchase up to 5,000,000 additional shares at $10.00 per share. The closing of the private placement occurred on May 30, 2024.
Convertible Notes (Fixed Income Offering)
A Convertible Note in Bitcoin mining is a financial instrument that starts as debt but can later be converted into equity or another form of ownership in the mining operation. Typically issued during fundraising rounds, the note allows investors to provide capital upfront in exchange for a potential stake in the company, rather than immediate repayment.
This structure offers investors an opportunity to benefit from future growth, as the note often converts at a discount to a future valuation. Convertible Notes are appealing for early-stage Bitcoin mining ventures, providing flexible financing while deferring valuation discussions until later stages.
Core Scientific (CORZ) announced on August 14, 2024, an offering of $400 million, later increased to $460 million in 3.00% convertible senior notes due 2029, an increase from the initially planned $350 million. The notes accrue 3.00% interest semi-annually, and mature on September 1, 2029. The company can redeem the notes starting September 2027 if certain conditions are met. The proceeds will primarily be used to repay existing loans and redeem senior secured notes, with remaining funds for corporate purposes.
Capital Raised Analysis since January 1, 2020
The table below highlights the capital raised from a number of the largest publicly listed Bitcoin miners in North America using ATM, PIPE and Convertible Notes. Marathon Digital and Riot Platforms were the two earliest miners to be listed on the Nasdaq stock exchange and benefit from the inflow of investment enabling them to effectively grow hash rate with greater speed than peer miners.
Other miners, such as CleanSpark (CLSK) and IREN (IREN), have also utilized ATM offerings to grow their hash rates substantially. Since June 30, 2022, ClanSpark has grown its hash rate to 30 EH/s, an increase of 971%, while IREN has increased its hash rate to 21 EH/s, representing 1,704%. These impressive growth figures highlight the effectiveness of ATM offerings as a capital-raising tool for miners seeking to scale their operations.
Conclusion:
Capital Raises as a Strategic Lever for Growth
As Bitcoin mining continues to evolve, access to capital will remain a critical factor for miners seeking to stay competitive and grow their hash rates. ATM share offerings, PIPE transactions, and Convertible Notes have proven to be highly effective tools for raising capital while maintaining flexibility and minimizing shareholder dilution. These financial instruments provide miners with the ability to fund infrastructure expansion, manage energy costs, and strengthen their balance sheets.
In part 2 of this article the discussion is more specifically aligned to the North American Bitcoin miners and how they have used the various capital raises to grow both Market Capital (MCAP) and operational hash rate.
