Bitcoin Miners Are Back Amid Crypto Rally

more important players in the market. The bitcoin miners themselves has also seen a lot of pretty significant weather events that have affected the United States, including recent ice storms in Texas that left hundreds of thousands of people without power. Again, energy is one of the most important costs that bitcoin miners must absorb, and of course they can't run all

those machines in their data centers if there's electricity. Now, we've talked on this show a few times about the challenging conditions that bitcoin miners in the US and around the world have been facing in recent months and years. Today we're going to discuss how some of them have been able to adapt, or at least try to take advantage of current market conditions to put themselves on slightly more stable financial footing. Joining me today is David Pan,

a Bloomberg Reports who follows bitcoin mining very closely. David, welcome back to the show. Thank you, thank you for having me back. I have to admit that every time I read one of your stories, and then I read another one of your stories, and then like a fourth or fifth one, I'm like, wow, bitcoin mining seems like

a complicated industry. So what we're gonna do today is break down a little bit what we mean when we say bitcoin miners, who some of these players are, and what's been happening to them over the past several months and especially coming into the beginning of So just to get started, can you remind our listeners what exactly it is the bitcoin miners do and why these companies are

an important part of the ecosystem. Yeah. Sure, the bitcoin mining companies they buy very expensive specialized computers produced by manufacturers like Main or Canaan. So they buy these computers to solve mathematical problems on the blockchain, to actually validate the transaction data for people who are doing transactions on the blockchain. In return, they will get block rewards from the network currently it is about six and have bitcoin

as a reward to the miners. They are important because they are securing the network Essentially because bitcoin network is permissionist, is decentralized, that there's no middleman to guarantee that the transaction is valid between two parties. But miners can do that. That's where they step in. So it sounds to me, based on what you're saying, the bitcoin blockchain wouldn't work effectively, safely,

scalably without the participation of these bitcoin miners exactly. So that's actually the very first point of bitcoin mining, you know, which is to secure the network, to validate the data on the network so that this can be a very trustworthy peer to peer payment network. But later, you know, it has another meaning, which is their financial abilities. For example, you know, at the very beginning of the bitcoin blockchain, you can just use a personal computers to mind bitcoin.

But later as more and more people get into this process with you know, bitcoin rising, so it becomes a very industrialized sector. You know a lot of companies they're investing millions of dollars to actually design a specialized computer to compute the problems m bitcoin network. That actually leads to increasing competition on the network to compete for a

limited supply of block rewords in bitcoin. And so it has grown from personal computers to warehouses of specialized the computer stacking on top of each other in the middle of nowhere, probably close to a power grid. So that's basically the evolution of bitcoin mining industry. And there are it sounds like two important consequences of that evolution that you've identified right. One is that it's very capital intensive.

It's expensive to run these big data centers. It's expensive to buy these machines, to maintain these machines, to pay for the electricity that these machines may need. And it looks like, you know, based on your reporting over the past twelve months, that various of the companies in the space, even the biggest ones, running too a lot of financial difficulty. In two call Scientific, one of the biggest publicly traded companies creating or mining cryptoccurrences in the US filed from

bankruptcy protection blamed slumping bitcoin prices. But some of them seem to have started three in a much better situation than just a few months ago. So what's going on there? They're actually a variety of reasons why, you know, we're seeing a mixed performance from like different miners. But stepping back a little bit, we have to talk about the

size of the loans the mining companies are taking. I mean just looking at the public filings and also talking to private mining companies, we have as much as four billion dollars, just like in bitcoin mining machine backed loans. And then you have bigcoin backed loans, which is actually a more common and popular financial tool for bitcoin miners to raise money. And then you also have family office and and the people from the RAT five sector are

funneling money into the sector by traditional financial channels. The miners have a variety of ways to raise money. And then we can talk about why some of them are doing better than others. It is because the leverage leverage is in the debt that they're exactly looking at the balance sheet of the miners and you can actually see they actually have a lot of debt. Their debt to

equity ratio is very high. And then you have some other relatively healthy miners, for example Hoidad, and they keep their operations in general very lean, so like they don't actually want to expand very large projects. They don't want to have like one giggle, what mining side in the next few years and then one giggle, what is that very big? That is very very big? And another reason is that the timing of the debt. You know, for example, one of the best examples will be Marathon Digital Holdings.

They actually borrowed money at a very low rate from civil date through a feel of credit facilities, so they're definitely less burdened with interest the payments over time just because the timing when they took out the debt, the rate was really really low. So that's another reason why

you know, some miners are doing better than others. Up next, you'll hear more from Bloomberg reposted David pan on what will likely affect the prospects for bitcoin miners in three So one question that I have for you is why would very very traditional, as we say trad fi entities like an Apollo or a black Rock find themselves lending

money to extremely non traditional companies like bitcoin miners. Yeah, I think crypto money is kind of like was regarded as as a way for people to get exposure to cryptole and especially for these traditional financial services companies, it's harder for them to directly hold crypto assets just because

of the compliance and regulatory raisins. But getting into crypto mining companies who are publicly traded, that is much easier, for example, to convertible bond is a very conventional financial channel for for big companies to tracify companies to get involved in cryptole and kind of looking forward, one of the things that has been true of January going into February is that crypto related stocks, whether it is banks, whether it is the exchanges, and to some extent the

miners that really got i'll use the scientific term hammered in two have you know, kind of started the year with a rally, and various folks, analysts, investors are kind of asking like, is this sustainable? Right? Is there something fundamental that shifted about the market, or it's just people just being like, who finally is not the worst news in the world. What are what are you hearing on the mining side of this conversation? Yeah, so the miners um.

So there's a term called a miner's competulation when the bigcoin price is going down at the same time the hash rate is going down and along with a few other conditions. When it hits those conditions, there will be a situation called a minor competulation, which means the market has hit the bottom. So, and to be clear, that's not minor capitulation like M I, N O are small. It's like minor compitulation, Like the miners themselves are are

flying a white flag of defeat. Yeah, the sector's compitulation. Yeah. So basically what it means, like, you know, the low price have been going on for so long, it has driven out some of the miners. So historically it was a pretty good indicator that shows the market is hitting

the bottom. But like, not so sure this in this cycle because in the last cycles, miners were actually more powerful with larger bitcoin holdings because when they were facing financial pressure, they needed to sell their coin reserves, so that would create and they were selling in a down market, right, like actually getting a lot of money from them, got it. Yeah, And then like they were imposing more selling pressure into the market just because their coin holdings were still large

in the previous cycles. But in this cycle, a lot of the miners already emptied their bitcoin on the balance sheet, so they actually don't have a lot of power or like influence over the market because they don't have as many coins as before. And I think you had just reported that one miner sold tokens for the very first

time this year. Marathon Firstly, I think, like the company do need to capture the higher prices because I think they've learned the lesson along with so many other miners that maybe, like, you need to sell some of these coins. I mean, you can be a hoddler, you know, you can't hold hold on, hold on forever, like hold on dear life. But at the same time, I mean, is that a rational like decision for for a bitcoin minor.

I mean, it has turned a lot of the miners have realized that that wasn't the best interest, you know, to just keep all the coins, so like they decided to sell some of the coins rather than selling them in a bear market. And if they can sell them in a in a rally like this, you know, like uh, relatively longer rally in the crypto market, if they can capture some of the prices, they'll be good, you know, for their for their balance sheet, especially now they are

burning cash. So I think that's that's one of the reasons why Marathon was doing that in January. And then another reason might be they are increasing their production. They are producing more bitcoins just because you know, they're operations have been growing over the last year, so they figured that you know, like by selling some of those coins, I wouldn't affect their holdings that much because they're like adding to their holdings at a faster rate than they're

selling them. All. Yeah. Well, I'm going to end with one of the things that we say on the team all the time, which is like never a dull moment. So thank you as always for coming on the show. Thank you. That was Bloomberg, reported David Panton. You can find more of his reporting on the Bloomberg Terminal and on Bloomberg dot com, and be sure to check out our twice weekly news less of Bloomberg Crypto. This is Bloomberg Crypto, a daily podcast from Bloomberg and I Heart Radio.

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