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.Read MoreFeedzy

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 selloffs, 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 bitcoin prices soared to an all-time-high. However, the rally evaporated this year with lower bitcoin prices, rising network hashrate and brutal competition.

With markets off their peak, access to capital has also become somewhat restricted for the miners who need large amounts of capital 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)

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 DA 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 non-dilutive 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 said later in April that it plans to sell up to $200 million worth of shares through an ATM program. And in February, Hut 8 (HUT) launched a $65 million ATM offering and Marathon Digital (MARA) filed to raise $750 million. 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.

In light of such market conditions, raising debt, through creative ways, has become an emerging trend among 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 S19j Pro bitcoin miners. Meanwhile, Australian bitcoin miner Iris Energy (IREN) secured $71 million in equipment financing backed by 19,800 Bitmain 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.


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