The surge in share prices for artificial intelligence (AI) and high-performance computing (HPC) firms since September has yielded remarkable returns for bitcoin miners diversifying into these sectors, but this growth comes with implications.
Bitcoin has increased by only 10% this year, with the decline in corporate bitcoin treasury valuations shifting the focus to miners adapting their business strategies. These miners are becoming more active in the debt markets to finance significant expansions into AI and HPC sectors.
As reported by The MinerMag, their total debt and convertible note offerings reached unprecedented heights in the third quarter, with estimates up to $6 billion. This raises default risk, shifting investor attention to the necessity of substantial revenue growth from this pivot.
TerraWulf (WULF), MARA Holdings (MARA), and Cipher (CIFR) collectively raised billions via convertible bonds during the quarter, while CleanSpark (CLSK) utilized credit lines to strengthen their financial positions.
This momentum has persisted into the fourth quarter. TerraWulf initiated a $3.2 billion private placement of senior secured notes, reportedly the largest single offering from a public miner, according to The MinerMag. Shortly thereafter, IREN (IREN) issued a $1 billion convertible bond, and Bitfarms (BITF) announced a $300 million convertible note.
Some of these financial instruments, such as IREN’s, feature a zero-coupon structure. Others, like TerraWulf’s new issuance, have increased costs, with a 7.75% coupon resulting in an annual interest expense around $250 million. This significantly surpasses the company’s 2024 revenue of only $140 million, as reported by The Miner Mag.
Is This Time Different?
During the 2022 bear market, the hashprice plummeted alongside a 70% drop in bitcoin, leading lenders to seize machines posted as loan collateral, a process witnessed when Core Scientific (CORZ) went through Chapter 11 bankruptcy.
The MinerMag indicates that the current debt-fueled fundraising cycle is distinct due to the focus on AI and HPC. By aiming for diversified revenue streams, miners may mitigate risk.
The market is rewarding higher valuations for miners pivoting from traditional bitcoin operations to AI and HPC businesses. Although convertible bonds can lead to shareholder dilution, this transition is also attracting a new pool of investors.
The CoinShares Bitcoin Mining ETF (WGMI), often viewed as an indicator for the broader bitcoin mining sector, has surged by 160% year-to-date.
