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Block reward miners on the BTC network had their least profitable month in nearly a year in August, leading to bankruptcies, share dilutions, and other ‘Hail Mary’ efforts to stave off the inevitable.
Bitbo data shows BTC miner revenue hitting $827.5 million in August, less than half the total from this year’s peak of $1.93 billion in March and the lowest total since September 2023. Transaction fees’ contribution to this total also slumped to a year-to-date low of $20.8 million. Meanwhile, mining difficulty hit an all-time high in August, making the average cost of producing a single BTC token significantly higher than the fiat value of the said token.
The financial toll of competing to win unprofitable rewards is proving disastrous for smaller miners. On August 24, Rhodium Enterprises filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of Texas.
Rhodium was already struggling to repay $54 million in loans, including “more than $26 million” owed to rival Riot Platforms (NASDAQ: RIOT), but this spring’s halving event—which reduced the block subsidy to just 3.125 BTC—proved the final straw.
Over the weekend, Bloomberg reported that Rhodium had received court approval for a loan of 500 BTC (currently worth around $29 million) from Mike Novogratz’s Galaxy Digital firm. The court approved this BTC-backed plan because the proposed interest rate was 9.5% rather than a 14.5% rate had Rhodium accepted a $30 million loan in cash.
Other mining operators are turning to a variety of solutions to transform losses into profits. Core Scientific recently raised $400 million in new debt, which it used to pay down $267 million in old debt and take advantage of lower interest rates.
Riot recently announced plans to issue new shares, which benefits the firm but dilutes the value of existing shares held by investors. Riot’s total outstanding share count has increased by nearly one-third since the start of the year, while its share price is currently trading only slightly above its 52-week low.
The ‘green’ mining group CleanSpark lost $236 million in its most recent quarter, leading the company to announce plans to double its amount of common stock, a kick-the-can-down-the-road tactic that shareholders will be asked to approve at a special meeting in October. Tellingly, CleanSpark made its announcement on the Friday before the long weekend, as its share price slumped to a low not seen since February.
MARA (formerly Marathon Digital) appears to have given up on mining as a profit source, adopting the ‘if you can’t mine BTC, buy it’ strategy.’ Of the $300 million raised by MARA’s latest debt offering, $249 million was used to buy 4,144 BTC at an average cost of $59,500 (~$1,000 higher than BTC’s price at the time this was written).
I’ll gladly pay you Tuesday for a block reward today
Smaller miners lack the big boys’ ability to raise kajillions via debt/equity, but ‘decentralized’ BTC mining pool Loka Mining recently floated the idea of allowing miners to sell tokens they’ve yet to mine at a discount to institutional investors. The idea is that smaller miners could obtain the cash they need right now to keep their mining rigs humming.
Loka promotes these ‘tokenized forward hashrate contracts’ as a means of monetizing hash rates to access capital needed to scale up operations without giving up equity or operational control. But again, given the unprofitability of mining BTC, it’s unclear how miners entering into these contracts will ever make ends meet.
Frankly, none of the ‘solutions’ described above will fix the irredeemable problem here, namely, BTC’s deviation from the revenue model described in the Bitcoin white paper. The artificial bandwidth constraints imposed on Bitcoin by the BTC Core developers in 2017—resulting in the BTC chain currently masquerading as Bitcoin—prevent the chain from handling anything more than a trivial volume of transactions per block.
Bitcoin creator Satoshi Nakamoto was clear that the periodic halving of the block subsidy would eventually make mining unprofitable (Satoshi never expected Bitcoin to ‘moon’ to the seven-figure-fiat pipe dreams of today’s BTC maximalists). The idea was always for the individual blocks to scale well beyond their 1Mb origins in order to handle a sufficient volume of transactions to allow transaction fees to supplant the block subsidy.
By contrast, the BSV blockchain honors Satoshi’s vision by putting no artificial cap on block size, allowing it to handle transaction volume that puts Visa (NASDAQ: V) and Mastercard (NASDAQ: MA) to shame (and at a significantly lower cost-per-transaction). This capacity also gives BSV superior data-management abilities, offering utility that BTC can’t hope to match.
Central pork
The two biggest mining pools—Foundry USA and Antpool—accounted for a combined 54.1% of all blocks produced in August. Throw in their affiliated pools, and the duopoly’s dominance rises even higher. This concentration of effort has potentially serious consequences for BTC’s future security and pokes further holes in BTC’s beloved claim of ‘decentralization.’
And further concentration is on the way. For well over a year now, Riot Platforms has been pursuing a hostile acquisition of rival Bitfarms (NASDAQ: BITF), and Riot boosted its stake in Bitfarms to 18.9% last month.
But Bitfarms isn’t taking this takeover lightly, announcing on August 21 that it was acquiring struggling rival Stronghold Digital in a stock-for-stock merger transaction valued at $125 million plus the assumption of $50 million in debt.
While Bitfarms spun the deal as a significant boost to its existing hashrate, it also makes itself a tougher meal for Riot to digest. At the very least, it gives Bitfarms a stronger voice at the negotiating table should Riot prove unwilling to relent in its pursuit.
Bitfarms isn’t the only operator adopting a ‘survival of the fattest’ strategy in this post-halving environment. Earlier this summer, CleanSpark paid $155 million to acquire debt-laden rival GRIID Infrastructure. More of these deals are likely in the offing as investors come to terms with the fiscal reality of BTC mining and the realization that no one appears to care about the ‘decentralization’ trope anymore.
Pivot! Pivot!
Bitfarms CEO Ben Gagnon said his company’s acquisition of Stronghold was part of a “strategy to diversify beyond [BTC] mining to create greater long-term shareholder value.” Gagnon singled out artificial intelligence (AI) and high-performance computing (HPC) as two areas for which its mining rigs might be repurposed.
This is an increasingly common fallback strategy among major U.S. miners, whose price targets were lowered by JPMorgan (NASDAQ: JPM) analysts in August “due to share count dilution, lower [BTC] prices and a rising network hashrate.”
At the same time, Bernstein analysts suggested that whatever interest institutional investors still retained in mining operators was due to the belief that these miners would eventually be compelled to switch to serving as AI/HPC data centers.
BTC mining will limp on a while longer purely out of momentum and the sunk-cost fallacy, but the handwriting’s on the wall. A utility-free network with an economic model that ignores basic arithmetic and contributes to the planet’s warming, all to enrich a handful of HODLers? Time to take this ailing hound behind the barn and put it out of its misery.
Pay (Donald) to play
At this point, the only thing that’s going to pull BTC miners’ butts out of the fiscal fire is the election of Donald Trump as U.S. President in November. A former ‘crypto’ foe, Trump did a hard 180° this year around the time he realized that crypto bros had lots of money and he could get some of that scratch just by offering a few vague promises.
Trump has voiced several mining-friendly policy proposals, including ensuring unrestricted access to electricity for U.S.-based miners, while the Republican party’s official platform offered the vague assurance that Trump would “defend the right to mine” BTC.
As for how Trump’s transformation transpired, NBC News recently reported on a trio of individuals who’d ‘orange-pilled’ Orange Julius at a meeting this spring. Among this trio was Amanda Fabiano, who heads her own Fabiano Consulting firm and also serves on the board of TeraWulf, the world’s sixth-largest mining outfit. Fabiano previously served as head of mining for Galaxy Digital.
Fabiano said she was approached by David Bailey, promoter of the BTC conference that Trump appeared at in Nashville in July. Before that appearance, Baily tried to set up “a roundtable on mining” with Trump’s campaign team. Tasked with assembling the mining representatives for this prospective meet-up, Fabiano said one of the primary concerns was “[w]ho would be willing to put dollars up, kind of put their skin in the game?”
NBC reported that those who ended up going to the meeting at Trump’s Mar-a-Lago resort in Florida first had to ante up $500,000 apiece to a fundraising committee. Among those present were execs from Core Scientific, MARA, Riot and TeraWulf. Fabiano said the encounter with Trump showed him that “this industry is real, and they’re showing up with dollars.”
Ain’t it fun watching the sausage getting made?
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