DeFi: CleanSpark's $155MM acquisition doubles Bitcoin mining capacity, but not price
Renewable energy adoption makes Bitcoin mining more sustainable
GM Fintech Futurists,
Today we highlight the following:
PROTOCOLS: CleanSpark acquires GRIID for $155M stock transaction
CURATED UPDATES: Financial Institutions and Adoption; DeFi and Digital Assets; Blockchain Protocols; NFTs, DAOs and the Metaverse
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PROTOCOLS: CleanSpark acquires GRIID for $155Mstock transaction
Bitcoin miner CleanSpark has acquired GRIID, another mining infrastructure company, for $155MM in an all-stock transaction. Both of the companies are public, with CleanSpark trading at $3.5B on around $300MM of revenue.
CleanSpark will assume all of GRIID’s debts, in return for a hosting agreement that allocates 20 megawatts (MW) of power to CleanSpark. Megawatts translate into operating data centers, which in turn translate into mined Bitcoin proceeds — energy is money. A $5MM working capital loan has also been provided to GRIID, in addition to $51MM for immediate obligations. The deal is expected to add over 400MW to CleanSpark by 2026, effectively doubling CleanSpark’s current 400MW operation.
This move builds on other recent acquisitions from the miner, including an $18.75MM deal for two BTC mining locations in Wyoming that added 75MW and five other smaller acquisitions in Georgia that expanded capacity by 50MW. The GRIID acquisition sent CleanSpark’s stock price up 2.2% on the news, bringing the year-to-date gain to over 50% and increased institutional ownership of the stock.
What actually is Bitcoin mining?
Bitcoin mining involves competing with other miners to generate cryptographic security for the network. These miners leverage high-speed computers and significant energy infrastructure round the clock to secure new transactions. This is done by solving complex mathematical puzzles, with the first to solve the puzzle receiving a reward. These rewards are halved every four years, with current rewards at 6.25 BTC, until all 21MM BTC has been mined. After this point, miners will rely on transaction fees alone. Currently, 6.6% of the BTC supply remains.
As the network grows and the puzzles become harder, more computational power is required (i.e hashrate). This is why we are seeing players like CleanSpark acquire more BTC miners as they look to capture a greater share of the sector’s energy infrastructure and improve their hash rate. Other major miners have also been expanding their portfolio of data centres, such as Marathon digital, who acquired two mining sites from Generate Capital in December. Marathon’s acquisitions should enable the firm to double its hashrate over the next two years.
With that in mind, miners are competing for the most efficient and high-powered energy they can find. The balance sheet is simple — the value of earned coins must be greater than the cost to mine those coins. The more efficient the mining, the higher the profits. The top five best-performing miners in 2023 averaged returns of 554%.
We see two main contributors to the reinvigorated expansion of Bitcoin miners in the US. First is the recent rollout of 11 Bitcoin ETFs, bringing crypto into the Alternative asset class allocation. The first 6 weeks after the launch of these ETFs saw an aggregate of $5.5B in net flows and $50B in cumulative trading volume, far surpassing other major ETF launches. The other is China’s shut down of 90% of its Bitcoin mining capacity, which opened up a significant opportunity for Western miners.
While this may be great for investing in miners, when combined with the increasing hardware requirements and consolidation of players, there is a growing Bitcoin centralization risk. If an entity, or group of entities, manage to acquire over 50% of the hashing power, they would be able to perform a 51% attack on the BTC network. This would enable the attacker(s) to rewrite transactions, posing an existential threat to the Bitcoin ecosystem.
That’s an unlikely scenario given that Bitcoin miners are largely public companies. An attack on the network would destroy any future earning potential and sabotage their ability to run a business.
That said, what is the future of Bitcoin mining?
Bitcoin miners will eventually lose their BTC mining rewards, instead relying solely on transaction fees. When this time comes, miners will have to focus more on operational efficiency, rather than capital expenditure, which is why we are seeing so many acquisitions today. Those who are able to capture the strongest foothold have a chance to stay profitable in the longer term.
It is unclear whether an investment in a miner is better than an investment in the underlying Bitcoin asset, though we do see an opportunity to outperform. Miners have execution risk in building a company, and their exposure to Bitcoin can scale up from a small value base if approached correctly. That said, it is important to understand that an investment is a bet on (1) BTC as an asset, (2) the company as an operator, and (3) tech innovation around energy and hardware.
A related important note is the increasing reliance on renewables for mining operations, dispelling the incorrect tale of Bitcoin’s environmental unsustainability — 54.5% of energy consumption is now powered by renewable sources and green hydrogen poses even more opportunity for the sector. BTC mining has been an innovative catalyst for generating new sources of energy.
Whether it will remain the foremost cryptocurrency with competitors providing greater utility, speed and costs, while maintaining decentralization, is yet to be seen. While we wait, we can enjoy Bitcoin miners being one of the most innovative energy infrastructure companies today, exploring novel ways to efficiently capture and utilise energy to turn it into financial assets.
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Long Take: The financial extremes of the current market & unbelievable Evolve hack
We explore the current financial market's barbell distribution, with a potential for both significant gains and losses, but unlikely to remain stable.
We reflect on past misjudgments, such as the unexpected economic resilience during COVID-19 and Russia's financial recovery post-sanctions. Presently, interest rates, inflation, and employment trends are mixed, with tech stocks like NVIDIA driving market performance disproportionately. Despite favorable political conditions for crypto, its prices remain stagnant, creating uncertainty. The article concludes with the possibility of either AI-driven market growth or a downturn, in the context of various economic factors.
Curated Updates
Here are the rest of the updates hitting our radar.
Financial Institutions and Adoption
⭐ SEC Sues Consensys Over MetaMask Ethereum Staking Service - Decrypt
Robinhood Crypto Is Now Available in All US States, Including Puerto Rico and Virgin Islands - Decrypt
Circle Secures EU Stablecoin License as MiCA Crypto Regulations Take Effect - Decrypt
US Marshals Service picks Coinbase to custody its assets as part of a $32.5 million contract - The Block
Coinbase Partners With Stripe to Support USDC on Base - Unchained
Binance raises fees for broker users, report - Protos
DeFi and Digital Assets
⭐ Bitcoin Could Get Ethereum-Style Restaking as Startup Lombard Raises $16M - CoinDesk
Sony to Restart Japanese Crypto Exchange Whalefin Purchased From Amber Group in 202 - CoinDesk
Ethereum Builder Consensys Buys Wallet Guard to Strengthen MetaMask Security - CoinDesk
PancakeSwap rewards users with 2.4M ZK token airdrop - CoinTelegraph
Ampleforth introduces ‘low-volatility’ alternative to fiat stablecoins - CoinTelegraph
Blockchain Protocols
⭐ MegaLabs, Behind the 'Real-Time' Blockchain, Raises $20M, Led By Dragonfly - CoinDesk
Ora, Aiming to 'Unlock Design Space for AI Dapps,' Raises $20M - CoinDesk
Astria Raises $12.5M in Funding - FINSMES
Pi Squared, Building 'Universal ZK Circuit', Raises $12.5M - CoinDesk
Blast Token Tumbles as Layer 2 Unveils Season 2 - The Defiant
Igloo Inc. Acquires Frame - LuckyTrader
Rarimo's Worldcoin Alternative RariMe Goes Live - CoinDesk
NFTs, DAOs and the Metaverse
⭐ CARV Launches Alphanet: $35M Node Sale Propels Decentralization Milestone - FINSMES
Telegram CEO Calls Crypto Game Hamster Kombat World's 'Fastest-Growing Digital Service' - Decrypt
Redacted Raises $10M Led by Spartan Group with Animoca and P2 Ventures (Polygon) - The Defiant
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A 51% attack is unlikely as price increases. Its EV- to do this, leaving on nation states capable of colluding to shut it down.