Jul 26, 2023

As part of CoinDesk's special Mining Week, presented by Foundry, mining analyst Anthony Power joins "First Mover" to discuss the Bitcoin network's fourth "halving" event scheduled for next April and the implications for the crypto mining community.

Video transcript

Bitcoin's fourth having is slated for next April. So what does this mean for miners, coin desks. Special Mining week presented by Foundry is taking a closer look at the current conditions around equipment, energy use and diversification. Foundry and Coindesk are both owned by DC G. Joining us now to discuss is mining analyst, Anthony Power. Welcome to the show. Anthony. Thanks for being here. Thanks for participating in Mining Week. You wrote an article for coin desk all about this topic. So tell us about some of the key takeaways. Are you still with us, Anthony? Um Yes, I can see there you are. So tell us about the article that you wrote for Coindesk. Some of the key takeaways. Yeah. Um It, it wasn't the first article I've written on on the halving. I also write content for compass mining and I produced an article of them a few months ago. Um We're approaching the halving in April next year and this will be the fourth halving. The first block. Bitcoin was mined in January. Um 2009, the Genesis block and every 210,000 blocks, we have a halving and so the miners who were mining back in 2009 were receiving 50 Bitcoin for every block they successfully mined and that reduced to 12.5 in 2012 in 2016, that became 6.25. And, and we're going now to in 2024 the rewards will be half to 3.125 Bitcoin. And that means that, you know, miners who are mining. now, when that date comes, if the Bitcoin price remains as it is at the moment, we potentially see, you know, their, their rewards halved and effectively, you know, that means that, you know, that your costs have doubled effectively overnight. And so my article looked at um the ways that these mining companies and I analyzed the big North American public miners, but this will apply to all miners, this apply to all migrants globally. What the things that they would be doing. I'd be expecting to do between now and the haring itself and I came up with three or four different points. So, uh I, you know, I have to ask this because we've known about the having since literally the day the white paper was released, we've always known this was coming. Um But people seem to think that this is going to be some sort of bullish event uh as if nobody has ever heard of it or that the retail public hasn't heard of it. I it seems like this, this is, this happens every so often we hear about, oh, well, if you just look at a chart of Bitcoin, the price of Bitcoin and it has and therefore the having is what causes the price to go up this much. But, but there are other factors, right? There's a network effect of people adopting or, or, or people trading Bitcoin at least. Um Is this really go is this correlation uh is this a spurious correlation with price? Um or is this uh an actual, you know, is it causation because it just seems so, you know, obvious II I personally believe that, you know, miners will be looking back at the previous cycles to determine what's happened. And we have seen some, you know, some consistency with the actual um with the haring itself. One thing that has been clear, the Bitcoin home price hasn't always increased overnight in line with the halving has been reduced. So, you know, one of my key points that miners should be looking at now is making sure they have enough financial runway to get them through at least four or five months after the halving. And usually by that time, the Bitcoin price has, has sort of like started to, to, to, to move. But as you, as you quite rightly allude to, there are so many other factors that can affect the Bitcoin price and we've seen that happen even in the last few years. Um with regards to, you know, um, macroeconomic factors, the war in Ukraine and, you know, so many things can affect Bitcoin. Um, but it does seem to have that resilience. Um, and even though there are many factors trying to bring it down and you've, you've talked through various of these on your, on your channel before, with, with the likes of FTX and Celsius. Um, Bitcoin just seemed to bounce back. It seems to be, you know, strong enough to take, to take those challenges on. Um But from my perspective, I'd be expecting Bitcoin miners to making sure now that they have, you know, the, the sort of the, the most efficient mining machines in preparation for that halving because you want the most efficient machines that use the least energy um knowing full well that you're going to get half the rewards. Um The second key point is really, you know, the energy cost. Um We've seen energy prices come down since 2022 and we've seen a number of miners who've been able to lock into fixed price contracts and that's going to enable them to um to, to, you know, help manage the situation. Um The cash runway is, is absolutely essential. These miners need cash to, to, to, to, to pay for their electricity, to pay for their staff's wages, to pay for their GN A costs. So that's important as well. We're seeing a number of miners starting to diversify into high performance computing um artificial intelligence um hosting other mining companies. And the, the first two we've seen the likes of and hive digital um move to that area and Irish Energy um an Australian miner with um uh currently based in the U. They're also considering using some of their capacity at the children's site um to use it for data centers. My only concern with, with, with that di diversification is it, it sounds great at the moment and we're hearing artificial intelligence mention never the sentence. I just want to make sure the revenues actually follow those, those discussions and what they're implementing there. Uh These are Bitcoin mining companies and you know, whatever they do as a sideline, there'll always be Bitcoin mining companies at the moment. Um You know, I spoke to some of the CEO S and you know, their, their expectation of revenues. Uh you know, this will not really impact significantly on what they're doing um from a Bitcoin my perspective, but it will bring some supplementary revenues and some reasonable margins potentially. So, you know, it is something for consideration because we don't know how long Bitcoin price will stay at at this level. I can't predict the Bitcoin price in April next year. You can't predict the Bitcoin price. I can't predict the Bitcoin price tomorrow. So, you know, that's I wanna touch on that, that way. I never want to hear anybody ask me. They're like, well, you know, anything about me I'm like, just leave me alone. I absolutely stop. Please making a mental note to ask Lawrence that. Now every day I'll ask you about the Canadian dollar if you keep that up. Uh, Anthony, I want to touch on that diversification piece a little bit more. It sounds like the mining industry is really solving a lot of the challenges, but it's becoming increasingly more difficult to di, to mine and hence the diversification. Do you see a lot of the miners um that are operating now, you know, diversifying completely into a different business as time goes on as mining becomes more difficult. What are you hearing from the CEO S that you're speaking to the, the, the two, the two companies that are sort of really looking to move into that space significantly. And, and the two I mentioned that were eight and I digital bear in mind, these two companies had a serious amount of GP US when they were mining Ethereum before we had the fork um last September. So all those fantastic revenues, they were mining Ethereum with their GP US stopped overnight and they've then been looking for the next thing to do with those GP US. Now, the GP US that they have, you know, I think they're high end GP U. So they've got plenty of alternative uses. I mean, a Bitcoin miner and a machine can only do one thing, it can mine Bitcoin and that's it. But the GP us have got other uses and I think they're looking to sort of like move there. Will other miners um move into that space? I, I don't think so at the moment, I think um you know, the, the the big mine companies, the Marathon digitals, the riot platforms, um we will continue to grow clean spot, add them to that, that top tier group of miners um that they'll grow their hash rates um in a sensible way. Um buying the most efficient miners on the market. And those three companies I've just mentioned, they've been buying miners this year and last year in redness for this army and they've got serious hash rate ready. So, diversification, not in, not in terms of other revenues but diversification in terms of looking to Bitcoin mine in other areas of the world and marathon digital are already up and running in the UAE. So, but, but to that point, I mean, you know, would we see, for instance, like coin, you know, you said that they can only mine Bitcoin essentially, but there are all these offshoots of Bitcoin that essentially run the same way. Uh Would we see as the price of, of mining Bitcoin goes up this idea that, well, you know what we're to set up, we anyway, we can mine BS V, we can mine uh Bitcoin cash, we can mine light coin. You know, we can kind of go to these other, these other coins that sort of use the same, use the same technology essentially. Uh, and it's costing us a lot more now to deal with, uh, to deal with, uh, mining Bitcoin. Why don't we just switch to that? I mean, like who's gonna, and also who's gonna suffer? Who do you see suffering the most, uh, with, with, with the, having the, the, the ones that suffer the most will be the ones that haven't prepared. So they haven't got, you know, they've got machines that are going to require a lot of power. Um So not the most efficient machines on the market. And, you know, you need to the machine price at the moment are actually quite low. Go back 18 months ago, people were paying seven or eight times the current price of what they're paying now for machines and a lot of these mining companies did buy at seven or eight times the price and they haven't got the cash revenues now to really start looking to change though. You know, the older machines for new machines, you know, there's not many levers available to mining companies that they can sell Bitcoin and, and most of them are selling Bitcoin every month. Now. Gone are the days where we're huddling everything. Um There's debt but debt's becoming far more trickier and 2022 was the year of debt. And we saw quite a number of miners, some went into chapter 11 and some nearly went into chapter 11. So debt really is off the table for most of the miners. And the other option is to is to dilute the company. So you know, to sell more shares and you know, 2023 will be the year of dilution for most of these companies you want to name names. Um Well, II I can tell you now that Cleans Spark Marathon, digital riot platforms are all selling shares and cleans. Spark will, will, will, you know, will tell shareholders are selling shares, they want to grow their hash rate. You know, they've grown exponentially in 2022. They were the only miner to achieve their growth target in that year. They've got a growth target, which, which was about six hash in January this year, it's going to be 16 extra hash by the end of the year. That's phenomenal growth, but that requires phenomenal investment and you can't tap into the debt markets at the moment because the interest rates with the macroeconomic climate and also the climate around what's happened in the debt cycles in the mining industry where we've seen a lot of defaults on loans. We've seen a lot of repossession of loans. We've seen a lot of um uh issues of debt fall fall on their face because they've not really looked into this too seriously and looked at the how the price of Bitcoin not only affects, you know, Bitcoin itself, but it affects the actual machinery. So when Bitcoin price comes down. The cost of these machines, the value of these machines come down as well. And that wasn't anticipated by some of these lenders. And so, you know, they've also fallen foul of what, what they tried to succeed in. Um But, you know, um II I think I cover 15 or 16 in the biggest miners and I would say categorically that 90% of those are diluting, you know, regularly. Now, they've all got these at the market offerings which enables them and they're approved by the shareholders. So the shares have to approve the at the market offering, they can sell shares effectively on a daily basis. And you don't know how many shares they've sold until the quarterly earnings report comes out. And that's generally five months after. So in the next two or three weeks, we're going to see earnings reports from all these miners we've discussed and we'll see exactly how many shares and, um, you know, just, you know, looking for it highlighted what they, um, you know, what they've done the first five months of the year, they sold 41 million shares in the first five months of 2023 to help fund their growth.

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