Battered Bitcoin Miners Increasingly Turn to Debt Financing

Raising debt rather than equity to fund growth is being seen as more attractive, analysts say, but not everyone has the option.

AccessTimeIconApr 28, 2022 at 12:00 p.m. UTC
Updated May 11, 2023 at 4:17 p.m. UTC

Debt financing will be a positive catalyst for the shares of the publicly traded crypto miners whose stocks have tumbled this year as crypto and broader equity markets saw significant sell-offs, according to Wall Street analysts.

Due to their high correlation to the prices of the assets they mine, crypto mining stocks saw rapid appreciation last year as the price of bitcoin soared to an all-time-high. However, the rally evaporated this year with a lower bitcoin price, rising network hashrate and brutal competition.

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  • With markets off their peak, access to capital has also become somewhat restricted for the miners who need large amounts of funding to stay competitive and grow. “Access to the three M’s (money, megawatts and mining rigs) matters more than ever and based on investors' concerns around capital needs, accessing capital efficiently seems to matter the most right now,” said investment bank BTIG’s analyst Gregory Lewis in a research note this week.

    Year-to-date performance of publicly traded miners as of April 27 close (CoinDesk, FactSet)
    Year-to-date performance of publicly traded miners as of April 27 close (CoinDesk, FactSet)

    One way miners will be able to navigate this environment is by delivering on their promises to fund growth in more efficient ways by borrowing money, rather than just raising equity. “We expect funding concerns for some miners to be addressed in the near term as the BTC mining financing market matures which should be a positive catalyst for miners [who are] able to access debt financing,” Lewis wrote.

    This was echoed by investment bank D.A. Davidson’s analyst Chris Brendler in a recent research report. “We expect improved execution [of mining operations] and broadening access to debt capital to be positive catalysts [for the miners] near term,” Brendler wrote.

    As the industry matures, debt capital is preferred by investors, given its nondilutive nature. Indeed, offering equity in the current market has often not been kind to the share price of miners. Most recently, shares of TeraWulf (WULF), which uses 100% clean energy to power its mining operations, tumbled about 30% on April 12 after the company said it would raise $20.6 million by selling common stock. Another miner, Digihost (DGHI), said in March that it would raise $250 million through an “at-the-market (ATM)” equity program, which allows the miners to sell shares from time to time. At the time, Digihost’s market cap was less than $100 million, making a capital raise of $250 million – even over a period of time – a sizable amount. The shares of the stock fell about 18% on March 4, according to FactSet data.

    That hasn’t stopped some of the miners from keeping their options open to equity raises through ATM offerings, however. Most recently, Riot Blockchain (RIOT), Bit Digital (BTBT) and Mawson Infrastructure (MIGI) all filed to sell up to $500 million in shares. TeraWulf also filed a replacement prospectus of its February ATM program in April to offer up to $200 million worth of shares. And in February, Hut 8 (HUT) launched a $65 million ATM offering while Marathon Digital (MARA) also filed to raise $750 million through a similar offering. The share prices didn’t react as negatively right away, given the filings were “shelf” registrations, meaning there was no present intention to immediately sell all the securities being registered. However, most of these stocks have traded down with the market since their announcements.

    Creative ways to raise debt

    In light of such market conditions, raising debt through creative ways has become an emerging trend among miners as more lenders enter the market, Argo Blockchain's (ARBK) CEO Peter Wall said during an earnings conference call on Thursday. "There are just more of them [lenders] that are available now than there was 12 months ago," he said, adding that 18 months ago, there basically were no debt financing options available to the miners.

    Using specialized bitcoin mining computers, called ASICs, as collateral for loans has become popular among miners to fund their growth plans, as well as using mined digital assets as collateral. Most recently, bitcoin miner CleanSpark (CLSK) raised $35 million in equipment financing backed by 3,336 new Bitmain S19j Pro bitcoin miners. Meanwhile, Australian bitcoin miner Iris Energy (IREN) secured $71 million in equipment financing backed by 19,800 S19j Pro miners and miner Greenidge Generation (GREE) raised $81.4 million in S19j Pro-backed loans.

    “Although spreads and advance rates are no longer improving in this environment, we still see an increasing opportunity to leverage secured debt solutions, such as bitcoin-backed debt facilities and rig collateralized equipment financing,” Brendler wrote in his note. “The sector has also matured with an expanding set of lenders that are starting to include more traditional financial institutions for the first time,” he added.

    However, BTIG’s Lewis warns that access to “attractive capital” or debt terms that are more favorable for the miners may not be possible for all of them. He believes larger bitcoin miners such as Riot, Marathon Digital, Core Scientific (CORZ) and CleanSpark will have multiple options to raise debt, including asset backed and potentially corporate debt.

    In fact, Argo's Wall said he thinks that lenders are going to be more selective about whom they are lending to, with new miners that don't have a history of building mines or existing relationships with lenders potentially finding it difficult to get financing. "I think miners that have track records, that have existing teams in place and have relationships in place are the miners that are going to be able to grow [and get financing]," he said.

    UPDATE (April 28, 15:23 UTC): Clarified terms of TeraWulf's and Marathon's equity raises, and added comments from Argo's CEO.


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    Aoyon Ashraf

    Aoyon Ashraf is managing editor with more than a decade of experience in covering equity markets