Digital miner Bitdeer Technologies Holdings, led by crypto billionaire Jihan Wu, is trying to raise $200 million from outside investors to buy discount hardware despite strong mining industry headwinds and icy prospects from Wall Street.
Wu is the co-founder of the world’s largest Bitcoin mining computer chip company, Bitmain. After settling a protracted dispute with another co-founder, Micree Zhan, Wu took control of the spin-off Bitdeer. The company will start its acquisition plans with an investment of $50 million and aim to raise an additional $200 million from outside investors such as family offices, venture capital firms and mutual funds, Bloomberg reported.
Raising funds for cryptocurrency mining is an ambitious – and perhaps audacious – goal given the low interest in the business by traditional financial players. In 2021, the list of listed mining companies was growing rapidly, ending the year with 16 operations on Nasdaq. Today, the three largest listed mining companies by market capitalization – Marathon, Riot and Core Scientific – are down 70%, 69% and 87% year-to-date, respectively.
Last year, when the price of bitcoin reached an all-time high, miners adopted aggressive growth strategies and demanded more miners. However, these units usually take at least six months to arrive and are paid for in three installments. With bitcoin down 56% year-to-date, and the cost of energy increasing globally, mining margins are shrinking, and many miners don’t have the funds available to terminate their contracts.
DA Davidson: “This last payment is the key factor because a lot of these companies have used all their money to pay for the first and second tranches, but after the last payment is due, they don’t have the cash anymore,” says analyst Chris Brendler. “It’s very attractive for buyers to come and say ‘Hey, I’m going to buy this necklace, don’t let it default.'” “
A measure called the hash rate captures the daily revenue per unit of mining power. The hash rate has fallen more than 57% since last year, driving down the value of bitcoin miners. The low retail price, high energy costs and panic selling of machines suggest that the value of these computers will fall even further. At the same time, selling the machine provides those well-capitalized companies with an efficient mining infrastructure (read: power purchase agreements) in place to grow as the market consolidates.
“There is a negative protection for these companies in the form of diminishing competition, and not only are energy costs going up and the price of bitcoin going down, but it’s also the third part of the capital markets, you can’t raise money to build your bitcoin operations today,” Brendler says. “You can try if you are Bitdeer, but it is very difficult to convince investors to do that today.”
CleanSpark is another example of a bitcoin miner moving to take advantage of cheaply available equipment. Between August and September, CleanSpark acquired two mining facilities in Georgia from the Mawson Infrastructure Group and Waha Technologies. The total value of the acquisitions was $67.6 million.
Bitdeer went public through a deal with a special purpose acquisition company (SPAC) called Blue Safari Group Acquisition Corp. in November 2021, but the deal has since been postponed twice with the new deadline set for December 14. Despite the setbacks, the price of Blue Safari has been on the rise since the beginning of the year, which seems unexpected in a market that has strained SPACs and shivered during the crypto winter. At the time of writing, Blue Safari was trading at $10.26 which is up 3% since the beginning of the year.