The Daily Dive #085 — Public Miner Analysis
Public Miners Ramp Up
As we’ve covered in previous Daily Dives, The Daily Dive #076 — Mining Overview Monday and The Daily Dive #061 — Bitcoin Mining Industry Overview, the hash rate of the Bitcoin network has shown a resilient recovery from the Chinese mining exodus, growing 74% in just a few months’ time. The hash rate growth is on pace to reach all-time highs of 185 EH/s by the end of this year.
Although we expect the entire hash rate growth to occur across home miners, private mining companies and public companies - it’s the public miners where we get the most information about their hash rate growth, trajectory and production scale.
As it stands from public miner reporting, the top eight public mining companies currently control 10% of all the network hash rate, currently around 15.19 EH/s. But the kicker is that they are only just getting started. As an overall group, they have published plans and goals to grow their hash rate by 267% from now through 2022, which would bring their total collective hash rate to 55.82 EH/s. Both Marathon Digital Holdings and Core Scientific, the two largest North American miners, will account for nearly half of this growth, both planning to 5x their current hash rate.
If we extrapolate that level of growth from this group of eight out to the entire mining industry, we would see network levels of 533 EH/s for 2022 in the best-case scenario. That said, the far more likely case is that the largest public miners are growing their production at a faster rate, taking up more market share as they grow at scale. This is because large-scale industrial miners have first access to new ASICs amidst a global semiconductor shortage caused by disrupted supply chains. Using an assumption that the top eight public miners can grow their hash at double the rate of the market would estimate total hash rate in 2022 around 360 EH/s with their market share around 15%.
Another new, growing dynamic amongst the top public miners is their commitment to growing the amount of bitcoin held in their treasuries, especially growth in holding their self-mined bitcoin.
Currently this group of eight miners holds around 23,868 bitcoin worth $1.46 billion (at a $61,000 bitcoin price). Although we've seen a small-to-stagnant declining miner share of circulating supply over the last five years with miner balances at 9.63% of the total market, we’re entering into a new market phase where miners will be trying both to hold as much bitcoin as possible, and also increasing their share of supply. Shareholders are demanding more bitcoin exposure in vehicles outside of buying bitcoin outright and increasing company bitcoin holdings will increase bitcoin per share for investors.
This strategy is now more viable as bitcoin miners grow their access to legacy capital markets. Rather than selling off bitcoin to cover costs, miners can raise equity in the public markets or take on U.S. dollar-denominated debt to acquire more bitcoin. These are the type of Microstrategy speculative-attack-type moves, covered in The Deep Dive #071 — Speculative Attack And Realized Cap, that we expect to continue to play out in the market as miners trade U.S. dollars for more bitcoin.
Final Note
For many, investing in public bitcoin miners will give a level of bitcoin exposure with significant upside if investors are able to pick the winning miners who can best manage operational and execution risks in one of the most competitive industries.
But for most investors, it will be difficult to beat the performance of just holding the underlying spot bitcoin over the long run when you also have to consider industry valuation comparisons and the impacts on future equity multiples with declining bitcoin issuance.
We will continue to track the public bitcoin miners’ moves, adding to our coverage and analysis in the future. In the meantime, keep stacking sats and HODL.