Yesterday, MicroStrategy announced a new fundraising to purchase more Bitcoin, and other mining companies are starting to follow its example.
Bitcoin mining is an activity that involves high costs and risks, and lately it doesn’t even yield much. It is therefore not surprising that crypto mining companies are abandoning BTC extraction to focus on simply purchasing on the market.
The next Bitcoin purchases by MicroStrategy: mining companies follow
With an official press release, the company announced that it intends to offer the market new senior convertible bonds maturing in 2028 for a total amount of 700 million dollars.
This is a private offer to qualified institutional buyers, to whom MicroStrategy will grant a purchase option, within a period of 13 days from the date of the first issuance of the bonds, for an additional total amount of 105 million dollars.
The senior bonds will not be guaranteed, and will accrue interest payable semi-annually on March 15 and September 15 of each year, starting from March 15, 2025.
They will expire on September 15, 2028, unless they are repurchased, redeemed, or converted.
MicroStrategy has also explicitly stated that it intends to use the net proceeds from this offering to redeem all $500 million aggregate principal amount of the Senior Secured Notes at 6.125% due in 2028, and to use any balance of the net proceeds to acquire more Bitcoin.
Therefore, at the current state, it is not precisely known neither what the amount used to purchase BTC will be, nor obviously how many BTC will be purchased.
Until now, the company since 2020 has already purchased more than 244,000 BTC, investing a total of almost 9 and a half billion dollars. The average purchase price was $38,585, so the investment currently has a strong potential gain. In fact, the overall market value of all the BTC held by MicroStrategy is over 14 billion dollars.
Many of these 9.5 billion dollars have been borrowed from the market by issuing bonds.
The Bitcoin mining companies follow the example of MicroStrategy
After the halving in April that suddenly halved the reward for miners, and with the continuous increase in difficulty, the profitability of Bitcoin mining activity has collapsed.
It is estimated that in April, before the halving, it was above $0.1 per THash/s per day, while now it has dropped below $0.05.
Due to the inevitable and constant increase in the efficiency of machines for mining, the cost per THash/s continues to decrease (and will continue to do so in the future), because with the same amount of work done, the increase in efficiency precisely reduces energy consumption.
However, from June 2022 to April 2024, profitability remained around $0.1 per THash/s, or at least above $0.05. Instead, with the halving, it suddenly dropped below this threshold, reaching new all-time lows.
Moreover, several times in recent months it has also fallen below $0.04.
In such a scenario, only the mining companies that have set aside many BTC over time, or that can rely on extremely low energy costs, are managing to resist.
It should be noted that the mining of other criptovalute based on Proof-of-Work, such as Dogecoin, Litecoin, or Bitcoin Cash, is absolutely not capable of generating revenues comparable to those of Bitcoin mining, especially when it comes to large-scale facilities.
From mining to the purchase of Bitcoin
To all this must be added that MicroStrategy is now truly blazing a trail, thanks to the financial performance of its investments in BTC.
Even when he started buying Bitcoin, in August 2020, the price was below $12,000, which is almost five times lower than the current one.
MicroStrategy in fact has never yet sold any BTC purchased over the past four years, and this means that its financial strategy to date is very profitable, although only in potential form.
At this point, it is more than obvious to imagine that crypto mining companies in difficulty might also consider ceasing the mining activity itself, and investing their capital in the simple purchase of Bitcoin.
One of these companies is Cathedra Bitcoin, has declared that it will abandon the mining activity to instead focus on providing general services for data centers, and on purchasing BTC on the free market.
According to the company, Bitcoin is emerging as a global reserve asset due to its unique monetary characteristics and macroeconomic and geopolitical conditions. For this reason, their primary objective is to accumulate BTC on behalf of their shareholders.
They added that in the last three years it has emerged that mining is not a reliable method to grow BTC in cash, so much so that nine out of the ten largest publicly traded crypto mining companies today have less BTC per share in cash compared to three years ago.
Instead, other listed companies have adopted a different accumulation policy, and they cite MicroStrategy as an example, rewarded by the stock markets.
In other words, MicroStrategy is setting an example, and struggling mining companies might opt for a drastic choice, stopping BTC mining and following MicroStrategy’s lead.
