Hut 8 Scores Major Investment as Riot Platforms Abandons Bitfarms Takeover
Hut 8 and Core Scientific open AI investment bonanza into the struggling mining industry. Nevertheless, mining firms fiercely resist outright attempts at acquisition.
As the Bitcoin mining industry struggles in the post-halving environment, a series of positive developments have occurred, with Hut 8 securing a $150 million funding deal and Riot Platforms scaling back its plans to merge with Bitfarms.
Although it has rebounded somewhat towards the end of June, Bitcoin’s price has been lagging as of late. This has touched on a variety of the community’s various facets, like the ETF sector seeing a week-long streak of monumental outflows totaling over 1 billion USD. However, an industry hit particularly hard by this price stagnation is the mining industry, which has seen a wide array of challenges. Since the halving in April cut miner revenues overnight, Bitcoin miners have been left in a situation where their core business operations are on the barest edge of profitability. Miners have already been selling off their Bitcoin reserves, such that these reserves are lower than at any point in the past 14 years.
In most halvings, the various mining companies have been well-equipped to deal with this completely expected business expense, especially considering that Bitcoin prices are usually elevated only in a window 1-3 months after the halving takes place. For the most recent halving, however, Bitcoin prices were at an all-time high immediately beforehand. As the months have rolled on since the halving first took place, Bitcoin’s price has only stagnated or even slumped, and many miners have been fighting for survival. In fact, since Bitcoin’s transaction fees are at the lowest level in the last 7 months, even this lifeline has been largely shut off to many firms. At the moment, Bitcoin’s hash price, the revenue a miner can expect from a certain number of transactions, is approaching the lowest levels ever recorded.
And yet, despite this, there have still been several prominent success stories from several of the leading miners. As mentioned, a potentially vital source of income for these mining firms comes from processing Bitcoin transaction fees and using mining rigs to keep the blockchain running smoothly without actually generating new bitcoins. This particular revenue stream may be depressed at the moment, but it’s only one of several strategies that leading miners have employed to maintain profit. Other strategies include upgrading their equipment, acquiring new assets, or making new investments into non-Bitcoin business opportunities.
Hut 8, one of the leading mining firms in the United States, has recently capitalized on this last strategy to great effect. On June 24, the company announced that it received $150 million in investment capital from Coatue Management, an AI company that has already sought to acquire Core Scientific, one of Hut 8’s rivals. This investment strategy was simple: AI processing has extremely high computing demands, on the same scale as Bitcoin mining. Mining firms like Hut 8 could use their tremendous hardware capabilities to maintain large-scale AI infrastructure and use this as a potential source of revenue.
Since Hut 8 announced this particular strategy, its stock price has jumped more than 15% in a single day. Indeed, even though Coatue was unable to acquire Core Scientific outright, the AI company did manage to negotiate a similar deal with this mining firm as well. With these high-profile capital injections from a new and rising industry, a report from JPMorgan claimed that the collective market cap of 14 high-profile US miners had risen by $4 billion, or 22%. Considering that this rise took place during the same time period that Bitcoin dropped by 7%, JPMorgan argued that mining companies have a monumental opportunity placed before them. Capital investors are becoming increasingly aware of this industry’s potential wealth as an AI-sector ally, and deals like this could help Bitcoin miners stay highly profitable even despite market doldrums.
Nevertheless, it is important for Bitcoiners to remember that the furthering of a new AI industry is generally unrelated to the decentralized financial dreams of Bitcoin. In this respect, community members can take heart in the fact that prominent companies are still infused with that classic Bitcoin spirit—a determination to pursue these common goals with an individual approach. Case in point: Riot Platform’s attempt to carry out a hostile takeover of Bitfarms, which first surfaced in late May.
In a move that would have created the world’s largest publicly traded mining firm, Riot Platforms made an unsolicited offer to buy Bitfarm's entire business outright. Bitfarms quickly reacted to this offer, first with outright rejection and then further vows to block any future takeover attempts with a “poison pill” approach. Essentially, after Riot purchased 12% of Bitfarm's total stock, the company announced a plan to immediately dilute stock purchases with massive issuances if any single entity came to control more than 15% of the available stock. Although Riot condemned this move as part of “serious corporate governance issues” on Bitfarm's part, Bitfarm's stock price nevertheless went up the following day after it announced a new mining facility in Pennsylvania.
The message from this move was clear: Bitfarms is not some failing entity that needs a bailout to remain operational; it has plans to expand its operations and plans to resist any outside takeover. Shortly after this, Riot publicly ditched its plans to acquire Bitfarms outright. The company remains Bitfarm's single largest stockholder, at 14.9%, and therefore below the poison pill threshold. Riot still intends to replace several board members, including the CEO, but Bitfarm's independence is nevertheless intact.
Between Bitfarms and Core Scientific, several of the nation’s largest mining firms have remained resolute in their efforts to fight outright acquisitions from outside entities. This suggests that AI money, although a potentially lucrative source of income for miners across the industry, will nonetheless be unable to actually convert a large percentage of miners into full-time AI enterprises. The substantial hardware capabilities involved in Bitcoin mining were developed to actually mine Bitcoin, and it’ll take more than billion-dollar payouts to actually compromise the industry outright. In brief, the money that miners may acquire from deals like Hut 8’s will ultimately be re-invested into the Bitcoin industry, and the industry is making new innovations constantly. Although the road may look rough, it has certainly looked rough before. The classic determination and independence of Bitcoin’s various entrepreneurs will see us through, however, and Bitcoin will rebound all the stronger for it. Just as it always has.
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