🧡 Hashrate Set for Financialization and Investment Surge

Opinion piece by Sadiq Jaffer, Senior Manager, Financial Services, KPMG UK, and Kunal Bhasin, partner for Digital Assets Center of Excellence, KPMG Canada.

Bitcoin hashrate is emerging as a distinctive commodity with promising investment potential due to its fungibility, divisibility, and scarcity, according to KPMG's Sadiq Jaffer and Kunal Bhasin. Miners are adapting to Bitcoin's economic model, which drives them to minimize costs through strategies like grid-tied and behind-the-meter energy solutions, leveraging economies of scale and energy arbitrage.

The value of hashrate is influenced by Bitcoin prices, mining profitability, and regulatory factors, presenting unique investment opportunities, including derivatives for risk management.

Key metrics like hashprice and “hashcost” determine mining profitability, with the gap between them affecting capital-raising and operational efficiency. As the Bitcoin ecosystem evolves, hashrate's role as a tradable asset will likely expand, offering new avenues for capital markets and attracting innovative financial products.

💪 Bitcoin Network Hashrate Hits Record High Despite Price Decline

Bitcoin miners have been increasing their network hashrate despite recent declines in Bitcoin prices, signaling positive sentiment following a significant capitulation event earlier in August.

On August 5, miner outflows spiked to 19,000 BTC, the highest since March, as Bitcoin's price dipped to $49,000, suggesting miners sold off to cover costs amid tightening profit margins.

Despite these challenges, the network hashrate reached a new all-time high of 627 EH/s, recovering from an 8.5% drop in early July, indicating that miners are expanding capacity even as the hashprice, or revenue per unit of mining power, remains low.

Historically, such miner capitulation events have marked local price bottoms, and the recent spike in outflows could suggest a similar pattern, with Bitcoin trading above $61,000 as of Wednesday.

⛏️ In the News

• Marathon has completed a $300m offering of 2.125% convertible senior notes due 2031 and used part of the proceeds to purchase $249m worth of bitcoin.

• Core Scientific has priced a $400m offering of convertible senior notes due in 2029, increasing from an initial $350m, with the proceeds intended to repay debt and fund general corporate purposes.

• Riot Platforms has increased its beneficial ownership in Bitfarms to 18.9% by acquiring an additional 1,000,000 shares

• Mining profitability declined in July and hit all-time lows in August as the network hashrate increased, with U.S.-listed miners expanding their share of the global hashrate to a record 26%, according to reports from JPMorgan and Jefferies.

☀️ Report Season

🫧 CleanSpark Q3

• CleanSpark reported a Q3 FY2024 revenue of $104.1m, a 129% increase year-over-year, but missed estimates by $7.15m.

• The company posted a net loss of $236.2m compared negative $14.1m in the previous year.

• Adjusted EBITDA for the quarter was $12.7m in the red, down from $13.3m in the prior year.

• The increase in revenue was driven by a 24% rise in hashrate and a 21% improvement in mining efficiency year-to-date. CleanSpark’s hashrate exceeded 22 EH/s during the quarter.

• The company secured a $50m line of credit from Coinbase, backed by its Bitcoin holdings.

• The company's balance sheet shows total assets of $1.48b, with cash of $129.2m and Bitcoin valued at $413m.

🐺 TeraWulf Q2

• Revenue for Q2 2024 was $35.57m, a 130.16% increase YoY, surpassing expectations by $135k. Gross profit (excluding depreciation) was $21.7m, with a gross profit margin of 60.9%.

• Non-GAAP Adjusted EBITDA for Q2 2024 was $19.5m, up 156.4% from the previous year.

• The company paid down $30.2m of debt in Q2 2024 and an additional $75.8m in July 2024, eliminating all debt.

• Operational self-mining capacity grew 80% year-over-year to 8.8 EH/s.

• Self-mined 539 bitcoins at the Lake Mariner Facility and a total of 699 bitcoins across both facilities.

• The value per bitcoin self-mined rose 135.9% to $65,984, while power cost per bitcoin self-mined increased 243.2% to $22,954.

• Completed construction of Building 4 at Lake Mariner, expanding mining capacity to 245 MW and 10.0 EH/s.

• Started construction of Building 5 at Lake Mariner, expected to add 50 MW by Q1 2025.

• Nautilus Cryptomine Facility in Pennsylvania has 50 MW operational, with an additional 50 MW expansion planned for 2025.

• Advancing AI and high-performance computing projects at Lake Mariner, including a 128-GPU cluster from NVIDIA.

• Cash and cash equivalents increased to $104.1m from $54.4m at the end of 2023.

🐝 Hive Q1

• HIVE Digital reported Q1 2024 revenue of $32.2m, with adjusted EBITDA of $14.9m. Revenue from digital currency mining was $29.6m; HPC hosting contributed $2.6m. Gross operating margin for the quarter was $11.4m, or 35% of revenue.

• The company's bitcoin holdings increased to 2,496, bitcoin valued at $153.9m, with 449 Bitcoin mined this quarter.

• Installed hashrate reached 5.5 EH/s with a global fleet efficiency of 24.5 J/TH; the operational hashrate is currently 5.2 EH/s.

• Production of 449 bitcoin was lower compared to 658 bitcoin in the previous quarter due to the recent Bitcoin Halving.

• Strategic expansion into Paraguay is expected to double Bitcoin footprint over the next year.

• Plans to convert 30 MW of existing Bitcoin mining capacity to Tier 3 infrastructure for HPC are underway, with expected completion in 6-9 months.

🛖 Hut8 Q2

• Hut 8 Corp. reported $35.2m in revenue for Q2 2024 from $20.5 m in the previous year.

• Revenue breakdown for Q2 2024: Digital Assets Mining ($13.9m), Managed Services ($9.0m), High Performance Computing ($3.4m), and Other ($8.9m).

• Gross margins in Digital Assets Mining increased to 46% from 34% YoY. Adjusted EBITDA was a negative $57.5m, down from a positive $14.8m YoY.

• Bitcoin mined in Q2 2024 was 279, down from 740 in Q2 2023.

• 9,102 self-mined Bitcoin on its balance sheet. The company’s total Bitcoin holdings were valued at $570.5 m as of June 30, 2024.

• As of June 30, 2024, Hut 8 managed 1,075 MW of energy across 18 sites and owned approximately 49,400 miners with a total hashrate of 4.8 EH/s.

• The company closed a $150m investment from Coatue to build AI infrastructure. Hut 8 plans to commercialize its GPU-as-a-service in Q3 2024.

• A new site in Texas Panhandle with 205 MW of power capacity was announced, with potential for a large-scale commercial partnership.