Crypto mining companies approach selling Bitcoin differently

Crypto mining companies approach selling Bitcoin differently

Hold or sell is the question facing many cryptocurrency mining operations. Hut 8 consistently follows the previous approach.

Sue Ennis, vice president of corporate development at Hut 8, told Blockworks that the company has no plans to sell its bitcoins any time soon.

The Canada-based company has $70 million on its balance sheet and an uncorrelated computer business that generates $1.6 million in revenue per month, Ennis noted. Unlike some competitors, she added, Hut 8 does not have large outstanding capital commitments on machines from orders placed during the bull market.

"Last year and well into this year, we've been focused on how we can diversify our revenues and take a balance sheet approach when we buy machines and what price we paid for machines when we had them to be in a situation where we had to sell this very valuable finite asset that we're all chasing when things went sideways," she said.

Ennis said Hut 8 would most likely only consider selling Bitcoin if the asset's price jumps well above its all-time highs - indicating bullish long-term estimates from JPMorgan analysts and Ark Invest CEO Cathie Wood for Bitcoin reaching $150,000 and $500,000 respectively.

“At that point, maybe it would be to sell a little bit, invest it back into the [computing] and Web3 side of our business,” she explained. “But again, we have no intent and no actual price point that we have on our radar right now.”

Bitcoin's price was around $19,700 as of 8 a.m. ET, down about 71% from its peak of nearly $70,000 last November.

While Hut 8 Mining looks to hold on to its Bitcoin for the foreseeable future and continue to grow its cloud computing business, other miners have sold or plan to sell BTC as the crypto downturn drags on.

Bitfarms announced last month that it had sold 3,000 BTC in a week. CFO Jeff Lucas noted that sales are the best and most cost-effective source of liquidity in the current market environment.

Texas-based Riot Blockchain began selling a portion of its monthly Bitcoin production in March. The company sold 300 of the 421 BTC it produced in June, generating net proceeds of approximately $6.2 million to help cover operating and other costs. Riot held approximately 6,654 BTC as of June 30th.

The Company continues progress on its 400-megawatt infrastructure expansion project at its Whinstone facility in Rockdale, Texas.

“It is still important to us to have a strong Bitcoin balance sheet, so we have not been selling off the balance sheet per se,” Riot Blockchain CEO Lason Les told Blockworks, noting that the company has been selling between 40% and 75% of its Bitcoin production on a monthly basis. "There is no strict framework or guidelines for this. It is a decision that we evaluate monthly."

Compass Point Research & Trading analysts Chase White and Joe Flynn said in a June 28 research note that while they expect Riot to take on new debt or sell more of its Bitcoin production, "the company is well positioned to weather volatility in the BTC market given its lack of debt and significant BTC holdings."

Hive Blockchain Technologies said in a statement last week that its expansion plans will be funded through sales of its current Bitcoin and Ether product during “challenging times in the market cycle.”

The company sold Ether last year to expand its Bitcoin footprint as its ETH position fell from 25,000 ETH to 7,667 ETH. But Hive said in the July 7 update that it is trying to maintain its Bitcoin inventory, which stood at 3,239 BTC as of July 6.

Marathon Digital, which held 10,055 BTC as of June 30, has not sold any Bitcoin since October 2020, said Charlie Schumacher, the company's vice president of corporate communications.

“While we believe in Bitcoin for the long term, our decision to continue HODL is a strategic decision, not necessarily a principle,” he said.

“Bitcoin is a tool we can use. By holding it, we can increase our financial freedom of choice.”

The mining company received a $100 million revolving credit line from Silvergate Bank last October, collateralized by Bitcoin and USD.

“Given that we produce BTC at a fairly healthy margin, it may make sense for us to sell a portion of our monthly Bitcoin production as our production ramps [up] as needed to fund monthly operating costs,” Schumacher noted.

Hut 8 is expanding its computer business

Although mining remains Hut 8's core business, accounting for about 90% of revenue, Ennis said the company will focus more on its cloud computing and Web3 businesses. Hut 8 has been preparing for this since last year, the executive added, noting that the current macroeconomic downturn did not drive the decision.

Ennis said its computing business is on track to grow about 15% year-over-year as it looks to serve more Web3 and blockchain-focused customers.

“Obviously the entire crypto industry has suffered, but at the end of the day, projects still need to be saved,” she said. "Projects still need security. Projects, particularly in the blockchain gaming space, still need to be digitized and rendered. So it's pretty sticky revenue regardless of what the macroeconomics does."

Hut 8 acquired five data centers in Canada from TerraGo, a wireless connectivity company, in January. The purchase came afterwards Jaime Leverton who has a background in data infrastructure transformation, took over as CEO of Hut 8 in December 2020.

Ennis told Blockworks in March that Hut 8 wanted to provide an alternative to cloud computing giants like Amazon Web Services, Google Cloud and Switch.

Hut 8 acquired government, media and entertainment and financial services customers that used its cloud computing services. Although Ennis declined to disclose new customers on the Web3 site, it has a nine-person sales team that is building a pipeline.

Mining Is consolidation coming soon?

Steve Russell, co-portfolio manager of Emerald Mutual Funds' Finance and Banking Innovation Fund (HSSAX), told Blockworks last week that he expects a "cleanup" over the next year that will create winners and losers in the mining space.

White and Flynn wrote in their research note that lower BTC prices - they estimate averages of $21,500 and $34,000 in the second half of 2022 and full-year 2023, respectively - will likely "suppress" global hash rate growth.

Ennis said mergers and acquisitions are something the company has on its radar, especially after the company's $172 million raise last September.

“I think there is still pain,” Ennis said of companies in the sector.

“We have certainly seen miners selling to clear their balance sheet and equipment capital obligations, but we still believe there is still a long way to go.”

Les said Riot Blockchain is constantly evaluating possible M&A deals.

“We think that with our strong, unlevered balance sheet we are able to act opportunistically here,” he said.

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The post Crypto Mining Companies Take Different Approaches to Selling Bitcoin is not financial advice.