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BT Daily News: Crypto and Bitcoin Miners Rebrand and Diversify to Survive


1. Crypto and Bitcoin Miners Rebrand and Diversify to Survive: A Look at Their New Strategies

Bitcoin miners are trying to survive an icy crypto winter by broadening the scope of their business, both in name and in practice.

On Jan. 4, one of the biggest publicly traded bitcoin mining firms announced that it was swapping the “Blockchain” out of its name for “Platforms." The rebranding to Riot Platforms (RIOT) was to “underpin” an “increasingly diversified business.”

It is not the only firm making a name change. In the past year, miners have worked to diversify their revenue streams into other products and services using energy-intensive data centers. Some did so in response to brutal market conditions while others took steps to prepare for a downturn when business was still going strong.

The strategy is the opposite of what we’ve seen in past bull markets, where publicly traded firms would add the word “crypto” or “blockchain” to their names and see their shares surge more than 100% in a day – even if the company had no viable crypto-related business plan.
Now, “There's a general desire by companies to distance themselves from the crypto bubble of the last couple years,” said D.A. Davidson analyst Chris Brendler. “It makes it easier when you're dealing with more traditional finance institutions.”

Exactly how much of this wave of corporate rebranding and promises of new business lines is just talk to pump stock valuations in a depressed market, and whether it will last, is yet to be determined. It depends on how profitable it will be to diversify.

As we saw in the last bear market, many miners are pivoting their public narratives as a diversified business so that they don’t face solely the struggling mining valuations,” said Ethan Vera, chief operating officer of mining services firm Luxor Technologies.

Finite revenue from bitcoin mining
Just like traditional commodities, bitcoin mining is an extremely competitive and capital-intensive business, with miners competing for an asset that is limited in quantity.

There are only about 2 million more bitcoins that can be mined until the Bitcoin network reaches a cap of 21 million. Assuming the current bitcoin price of $25,000 per token, the total value of bitcoin to be mined works out to about $50 billion. That amount is “super finite,” said Lucas Pipes, an analyst at investment bank B. Riley Financial.

With many miners adding constant computing power to mine the limited amount of bitcoin, basing a whole business model on mining alone may not be viable. So companies are looking to repurpose some of their computing power for other industries and services. This includes selling “high-performance computing” to firms in industries like artificial intelligence and cybersecurity.

Others are looking to capitalize on energy markets, either by owning their own assets or selling energy back to the grid.

If you want to have a market cap of $50 billion – and what good CEO doesn't want to have a [high] market need to do something else as well,” Pipes said.

The energy play
One of the ways miners are diversifying their revenue is by leveraging their high energy consumption and close ties to power grids.

Riot, for instance, acquired an electrical engineering company last year to service its mega-mine in Texas called Whinstone. It's now offering similar services to other companies. Though gross margins from this new business (around 10%) were far shorter than its mining operations (about 59%, before applying power credits) for the first nine months of 2022, it could be an area of growth before including power credits, according to the company’s third-quarter earnings report.

Meanwhile, Riot also gained $21.3 million in power credits in nine months ending Sept. 30 by shutting down its operations to redirect energy back to the Texas grid, according to its third-quarter report.

The strategy is not an attempt to pivot away from its mining business, but to gain more control over costs and turn them into a revenue stream, Riot CEO Jason Les said. “We have a vertically integrated strategy for our bitcoin mining focus, and with that strategy we are focused on taking more control of our inputs and turning expenses into revenues.”

Competitors Greenidge Generation (GREE) and Stronghold Digital Mining (SDIG) also own fossil fuel-based power generators and sell power back to the grid.

The high-performance computing play
Miners entering the high-performance computing market are essentially hitching the wagon on a “mega-trend that should last for many years,” B. Riley’s Pipe said.

Bitcoin miners are uniquely positioned to compete in high-performance computing as most of them already have data centers and have access to low-cost power, said Luxor’s Vera.

However, the high-performance computing market is very competitive and miners lack the infrastructure and capabilities of already established data center operators. The computing industry is “a business geared to face customers,” Vera said, and many bitcoin miners don’t exactly have sales divisions.

2. Bitcoin Mining Meets Wall Street: An Analysis of Crypto Companies

The National Bureau of Economic Research (NBER), the American private non-profit research organization, released an analysis of 13 publically traded crypto mining companies enlisted on the NASDAQ stock exchange, entitled “Bitcoin Mining Meets Wall Street”.

Notably, the recently published article highlighted its key agenda as to study the specific strategies adopted by these companies in the relatively “difficult period”, stating:

Our paper studies how outside shareholders have valued bitcoin miners, and how the publicly traded mining companies have adapted their strategies in an environment that requires regular shareholder reporting and interaction with Wall Street analysts.

Interestingly, the paper expounded on the various possible sources of a company’s advantage in increasing the customer’s demand. The four possibilities shared include the companies’ access to scarce mining equipment, securing relationships with “cheap and reliable energy providers”, superior energy skills, and accumulation of BTC over time.

Meanwhile, the Chinese reporter Colin Wu tweeted on his official account Wu Blockchain that the NBER’s paper showed that “the ownership of a crypto mining company might provide a useful channel for risk management in the electric power industry”:

The National Bureau of Economic Research published a paper "BITCOIN MINING MEETS WALL STREET" pointing out that ownership of a crypto mining company might provide a useful channel for risk management in the electric power industry.

Significantly, the document focuses on the “miners’ relationship with electric utilities as sources of comparative advantage”. It is told that mining companies have switched to using sustainable or renewable energy, most of them engaging in “green” or “environmentally friendly energy use”.

Specifically, the paper scrutinized the miners’ choice between sustainable energy that is subject to “irregular fluctuations” and conventional sources of energy:

Our paper presents a basic model of a miner’s choice between sustainable energy and conventional sources of electric power, we identify market conditions under which a sustainable miner may be more profitable even when required to curtail its operations intermittently to accommodate demand surges by other customers.
Furthermore, the research explains the case in detail that includes the model, the database, the overall analysis, the discussions, and the final conclusion.

The post Bitcoin Mining Meets Wall Street: An Analysis of Crypto Companies appeared first on Coin Edition.

3. HIVE Increases Bitcoin Production in First Full Quarter Without Ethereum Mining

Crypto miner HIVE Blockchain increased its Bitcoin production in the final three months of last year, despite the ongoing crypto winter and the end of its Ethereum mining operations.

The Vancouver-based business mined 787 new Bitcoin in the quarter ending December 31, 2022, an increase of 13% year-on-year. In a statement, the company chalked the higher output up to the completion of its New Brunswick data center.

Even with Bitcoin prices low and mining difficulty increasing, miners like HIVE have continued to produce more Bitcoin.

Last month, for example, mining firm Riot Platforms reported a new all-time high in its BTC production.

Despite the increased production, HIVE brought in just $14.3 million in revenue for the quarter, less than half the $29.6 million total it made in the previous three-month period.

The figures reflected HIVE’s first full quarter without any Ethereum mining revenues, following the protocol’s transition to proof of stake in September in a process known as the “Merge.”

As a result of various factors including the Merge and a drop in crypto prices, HIVE posted a net loss of $90.4 million for the quarter.

HIVE copes with headwinds
Despite the loss, executive chairman Frank Holmes remained optimistic. That’s because the company is readying to launch its HIVE Performance Cloud (HPC), a platform for accelerated cloud computing using green energy.

Its launch is slated for the second quarter of 2023, and according to Holmes, it could bring in business from beyond the world of blockchain, even tapping into the first-growing AI sector.

We are sad to see the higher margin from mining Ethereum gone; however, our HPC strategy, which has taken longer to roll out, is now growing rapidly on a month-over-month basis,” he said.

The results cover a period that saw many crypto miners struggling for solvency, with the likes of Compute North and Core Scientific filing for bankruptcy last year. Several firms also turned to dumping their Bitcoin reserves to shore up their balance sheets.

In contrast, HIVE has increased its Bitcoin holdings by 30% year-on-year, ending 2022 with 2,372 Bitcoin.

The company also uses a grid balancing strategy to earn extra income. By selling its power back to the grid during times of peak demand during December, the company brought in revenue equivalent to mining 184 Bitcoin, according to its update for that month.

However, in January of this year, grid balancing income was only worth the equivalent of 10 Bitcoin.
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