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Elevated by institutional demand, crypto mining firms slide into public markets

Written by Stephanie Pearl Li Published on   6 mins read

Major enterprises and financial institutions are putting cryptocurrency on their balance sheets, legitimizing virtual assets.

Singapore-based crypto mining firm Bitdeer announced in November 2021 that it will go public by merging with blank check company Blue Safari Group Acquisition Corp. With a valuation of USD 4 billion, the deal will be one of the biggest crypto IPOs by market cap this year. The transaction is expected to be completed in the first quarter of 2022, according to Bitdeer’s announcement.

Other major crypto mining firms such as Core Scientific and Primeblock are also set to go public in 2022. Last year, four out of the seven crypto public listings were Bitcoin mining firms, including Greenidge Generation, Cipher Mining, Stronghold Digital Mining, and Terawulf, according to a report from Arcane Research.

With major crypto mining firms rushing to go public, publicly traded Bitcoin mining firms act as an investment proxy for investors who want to gain exposure to the world’s largest cryptocurrency by market cap. Unlike crypto trading, which speculates on the price movement, large-scale crypto mining generally logs eye-popping profits and growth.

The series of listings signifies broader market interest and strong institutional demand for crypto. Meanwhile, critics pose questions about the sustainability and prospects of the mining industry at a time of heightened regulatory scrutiny.

Bitcoin mining has been described as “one of the most profitable businesses on the planet” by mainstream media. Photo from Unsplash by Brian Wangenheim.

Bitcoin mining firms SPAC their way into public markets

Cryptocurrency mining is the process of obtaining new tokens by solving complex calculations. This operation is often performed by powerful computers that demand a large amount of electricity to function.

Crypto mining at scale is highly profitable. Bitdeer, which currently operates five mining data centers in the US and Norway, logged USD 215 million in revenue in the first half of 2021, up 27% than the entire year’s revenue in 2020, according to a stock exchange filing on December 15.

Bitdeer’s adjusted EBITDA is projected to be approximately USD 276 million in 2021, which is set to climb 22% to USD 337 million in 2022, per the filing.

Despite their profitability, crypto mining stocks are highly correlated with the price of Bitcoin, which is highly volatile. China cited the instability of cryptocurrencies’ value when it cracked down on crypto miners in May 2021. Subsequently, Bitcoin’s hashrate, which measures the computational power used for mining, dropped more than 40% in early June.

“The removal of mining capacity from China created an unfulfilled gap in Bitcoin mining, which suddenly made the activity much more profitable. The super-profits of Bitcoin mining incentivized miners outside of China to increase their mining capacity as fast as possible,” according to a separate report by Arcane Research. The uncertainties over mining operations could explain why the majority of the major mining firms are going public via mergers with special purpose acquisition companies, or SPACs, which are shell companies that raise funds to buy private firms with the aim of taking them to the public capital market. SPACs offer a relatively shorter timeline than traditional IPOs, hence quicker access to capital despite market volatility.

“Since Bitcoin’s price is so volatile, and the value of these companies is extremely correlated to Bitcoin’s price, mining companies are incentivized to finalize the public listing as soon as possible, as their business conditions and valuations can change extremely fast,” said Jaran Mellerud, an analyst at Arcane Research. “The biggest reason [of crypto mining firms going public in 2022] is just a continuation of the SPAC trend we saw in 2021. The stock market is hot right now, and private companies want to capitalize on that by getting access to all this public capital floating around,” Mellerud added.

Strong institutional demand for Bitcoin keeps listings active 

Major financial institutions have been banking on crypto mining firms to expand their portfolio exposure towards the crypto industry without dipping their toes into risky trading. The world’s largest asset manager, Blackrock, for example, acquired shares in Marathon Digital Holdings (6.71%) and Riot Blockchain (6.61%), pledging a total investment of USD 383 million, per a Forbes report, citing stock filings on June 30, 2021.

“Bitcoin mining companies have practically become Bitcoin investment vehicles since most of them have a strategy of never selling Bitcoin. They simply use their mining capacity to increase their Bitcoin holdings, even buying Bitcoin at times of favorable prices,” explained Mellerud.

This phenomenon has been in tandem with the trend in which publicly traded companies have been turning their cash reserves into crypto, placing Bitcoin on their balance sheets.

Meitu, the company behind selfie app BeautyCam, purchased Ether and Bitcoin worth USD 22.1 million and USD 17.9 million, respectively, in March 2021, making it the first major Chinese tech firm to invest in crypto. EV maker Tesla and Twitter co-founder Jack Dorsey’s digital payment firm Square have done the same, holding USD 1.5 billion and USD 170 million worth of Bitcoin, respectively. Other examples include Nasdaq-listed enterprise analytics software firm MicroStrategy, which currently holds around 122,478 Bitcoins, with an average purchase price of USD 29,861.

All of this points to the attractiveness of crypto mining businesses, which, once listed, could bring significant returns to the pockets of institutional investors. In 2021, the price of Bitcoin reached all-time highs by surpassing USD 65,000 in February, April, and November, after starting at a value that was below USD 30,000 at the beginning of the year. In comparison, shares of Marathon Digital Holdings increased more than 525% to over USD 75 in November, after starting the year at under USD 12.

Although Kazakhstan has emerged as one of the top mining hubs, some major miners are now considering leaving the country after an internet shutdown took place from January 4 to 6. Photo from Unsplash by Alexander Serzhantov.

What’s next for the Bitcoin mining industry? 

With more major crypto firms going public, the competition is set to intensify. Surging crypto demand has motivated different countries and crypto mining companies worldwide to explore the use of green energy—including solar, wind, geothermal, and hydroelectric power—to mine crypto, with the aim of maximizing their profits.

Parts of the US are shaping up to become Bitcoin mining hubs. Hashrates in countries like Canada, Russia, and Kazakhstan are also increasing.

“During the next few years, I believe the Bitcoin mining industry will be even more geographically decentralized. Mining will grow in regions where we don’t have much mining right now, like Africa and South America,” Mellerud told KrASIA.

“Mining will become more geographically decentralized because miners always seek the cheapest energy. Cheap energy is distributed globally, leading to increased geographic diversification of Bitcoin miners as they seek out the cheapest possible electricity,” he explained.

He added that off-grid mining will increase massively as more miners want to mitigate the political risk of being connected to the electrical grid. Countries like China, Russia, and Iran have implemented bans on crypto mining, citing concerns over illegal activities and disruptions in the local energy supply. European Union regulators also called for a ban because of the outsized share of renewable energy that miners consume.

Off-grid mining means that mining equipment will be disconnected from the central power grid, and energy will be generated using solar panels and stored in batteries. Then, the machines can be powered despite unpredictable circumstances in the electricity supply.

Although off-grid mining can be adopted in areas without power lines, it requires cheap land and massive solar farms that could be subject to regulatory scrutiny. Moreover, reliance on solar energy could lead to problems down the line, as consistent and stable mining would depend on favorable weather.

An array of major crypto mining firms continue to explore green and sustainable mining options—Bitdeer, for example, plans to raise its portion of carbon-free power supply from 54% (as of September 30, 2021) to 59% once the firm completes the construction of new mining facilities, according to the stock filing. Square also announced in June 2021 that it will invest USD 5 million to build a solar-powered Bitcoin mining facility in June 2021.


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