CoinShares Conversations: Bitcoin Mining

CoinShares is launching a series of four virtual events covering timely topics determined by the state of the market and conversation.

Summary of the CoinShares Conversation Virtual Event Series on Mining:

Bitcoin mining is similar to traditional commodities industries given that it uses physical capital (hardware) to refine a raw material (electricity) into a higher value product (hashes) that add values to Bitcoin. Just as with traditional commodities, the process of production for miners is highly capital intensive upfront and requires significant energy resources. Miners with the largest competitive advantages have therefore secured the lowest cost of fixed assets (land, equipment and infrastructure) and operating expenses (power contracts and downstream partnerships) relative to other market participants.

The mining market has become more challenging of late as the price of bitcoin has fallen during 2022 and the difficulty to produce bitcoin has risen. Summarizing a few key points regarding the current market that our panel experts shared in the virtual event held on June 15th are as follows:

• Miners on the highest end of the cost curve will be flushed out of the market, likely selling coins and equipment as they exit.

• Treasury management is becoming increasingly important; some strategies include generating yield on bitcoin holdings, diversifying revenue streams across multiple business lines, hedging price risk, and pursuing M&A.

• The demand for financing remains high at the same time as lenders are de-risking, creating challenges for miners with weak balance sheets or poor access to capital.

• Market downturns were unanimously and reassuringly considered opportune times for miners to build lasting strategies while prices are suppressed, insinuating "cash is king."

Looking to the future, our panelists added that the mining industry may include the following:

• Miners could make better use of heat waste by selling it to greenhouses, district heating systems, etc.

• Miners could provide ancillary services to grids as a flexible load source where programs are available.

• Mining markets will evolve to establish better and more liquid derivatives and hedging tools.

The CoinShares Conversation series will pick up in September/October with a new installment covering another hot button topic. Stay tuned!