If we should peg Bitcoin miners for any sins, let it be Wall Street’s most popular fare: marketing gimmicks.
Hive Blockchain (now Hive Digital Technologies) kicked off the public miner listing craze in 2017, after listing on the Toronto Stock Exchange. The subsequent flood of mining firm listings on U.S. exchanges allows any retail participant to get financial exposure to some 20-plus Bitcoin miners of various shapes, sizes and strategies. For investors not willing to hold crypto directly, these stocks are some of the best ways to participate in the industry’s growth.
Will Foxley is the host of The Mining Pod, and former director at Compass Mining and tech reporter at CoinDesk. This story is part of CoinDesk's 2023 Mining Week, sponsored by Foundry.
While capital is useful, equity markets are not dissimilar to the token markets many miners disparage. Retail investors huddle in Telegram groups, poking and prodding for updates from each firm, urging one another to “hodl” the stock or trust the executives on the ground, only for the leadership team to dilute stocks to worthless drivel, purchase ASICs at the top or fail to hedge energy contracts (believe me, these are not uncommon occurrences). The real vice here: marketing.
Take the extreme case of Nasdaq-listed Sphere 3D’s $1.7 billion purchase of 60,000 NuMiners, a Bitcoin mining machine that seemingly appeared out of thin air in early 2022. Instantly dubbed the “Mountain Dew miner” by online detractors, the machine and company immediately raised eyebrows among mining folks who’d never heard of it.
Nonetheless, on the back of a press release, Sphere3D’s stock instantly pumped 40%. It was all an obvious falsehood, but markets moved regardless. And while we can’t pin down if any specific retail participant was injured, we can look at the data and make a fair argument: markets don’t get mining, and sometimes executives don’t either. The deal was canceled and prices came back to earth.
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However, these sorts of gimmicks continue today. See, for instance, how miners have recently been leaning into AI and high performance computing (HPC) hype. It's unlikely that many – if any – of these miners are really within spitting distance of actual HPC practices, as recently stated by CoreWeave CSO Brannin Mcbee on the Odd Lots podcast.
“At the end of the day, they are just very different businesses, both from the type of engineering and developers you employ, to the infrastructure, to the data centers that you sit in,” Mcbee stated. (Mcbee did concede that trying to pivot into HPC was worth the attempt).
It’s time to ask the question: Why aren't miners leaning into education over marketing? There’s a healthy skepticism that points toward easy money as a motivator, given the sub-industries history of vapor over substance. Press releases boasting nine-figure machine purchase orders weren’t uncommon last cycle.
The trouble is that not every Bitcoin miner views access to retail investments in a positive way - i.e. as a chance to gain more capital while more supporters for Bitcoin’s wider purpose. Retail investors instead become a cushion for bad mining practices instead of legitimate partners in the business. All of which sours the whole investment outlook for mining. Dissatisfaction in a bad investment breeds contempt for the wider industry. For every good miner, there’s one that wiped out its equity table.
That’s not to say equity markets can’t be used effectively. In fact, even dreaded stock dilution has its place. As Cleanspark CEO Zach Bradford articulated here, timing dilutive events with ASIC or other hardware purchases actually benefits both parties by increasing the amount of productive assets.
“We’re taking that capital, and we are immediately turning it into cash flow producing assets. And were doing so with assets that we believe produce the best ROI,” Bradford said.
Luckily, there’s slowly a movement toward professionalization in the mining industry that should be encouraged. For example, most public miners have taken to publishing monthly updates, in addition to their SEC-mandated quarterly filings. Most mining firm executives have taken well to discussion around mining strategy, including dilution, on industry media outlets.
Let’s hope this time next cycle, miners eschew the gimmicks and start taking investor education more seriously.