Public Miners Are Outperforming Bitcoin

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Public Mining Update

Looking at the high-level view of bitcoin holdings, we’ve seen a declining trend in holdings across public miners throughout 2022, from 46,930 BTC at peak in April 2022, to 31,892 in January 2023 — a 32% decline in 10 months. With Bitfarms, Core Scientific and Northern Data shedding their bitcoin, holdings across public miners are now largely concentrated in Marathon Digital, Hut 8 and Riot Platforms.

The trend of hash rate expansion is “up only” with public miners growing their hash rate by 129% over the last year. This growth has been a significant driver of overall hash rate expansion with the network hash rate recently reaching 300 EH/s and public miners making up nearly 25% of all hash rate on a given day. That percentage is understated as we’re not including all public miners, like Cipher and Terawulf.

Mining Production Update Notes

Marathon made a statement about their choice to sell some bitcoin that the company mined, “With bitcoin production increasing and becoming more consistent, we made the strategic decision to sell some of our bitcoin, as previously planned, to cover some of our operating expenses and for general corporate purposes. We intend to continue to sell a portion of our bitcoin holdings in 2023 to fund monthly operating costs.”

In their announcement, they shared about places for further hash rate expansion. “The company still expects to have approximately 23 EH/s of capacity installed near the middle of 2023.”

Similarly, HIVE’s production update informed shareholders about bitcoin sales, “HIVE sells all of the Bitcoin earned from our GPU mining hashrate, with a focus to HODL the green Bitcoin mined from ASICs.”

Riot Platforms announced a delayed timeline for growing their hash rate, “Unfortunately, as a result of this damage, our previously announced target of reaching 12.5 EH/s in total hash rate capacity in Q1 2023 is expected to be delayed. We will provide additional updates as we obtain greater clarity on the impact to our planned deployment schedule. In the meantime, the remaining infrastructure build-out at our Rockdale Facility continues to progress, with Building E now at 50% completion and on track to be fully completed this quarter, and we are continuing to execute on the expansion at our Corsicana Facility.”

Iris Energy increased its mining capacity from 2.0 to 5.5 EH/s by using prepayments to acquire new miners.

In other public mining news, Hut 8 shared about a recent merger and their HODL strategy:

“On February 7, 2023, Hut 8 announced a merger of equals with U.S. Data Mining Group, Inc. dba US Bitcoin Corp (‘USBTC’) which is expected to establish the combined company as a large scale, publicly traded Bitcoin miner focused on economical mining, highly diversified revenue streams, and industry-leading best practices in ESG.

“We have been intentional and strategic in pursuing our HODL strategy: by building a large, unencumbered stack, we have afforded ourselves the optionality to strategically use a portion of it to cover operating expenses rather than having to seek other financing options with less attractive terms,” said Jaime Leverton, CEO. “I am confident that selling production while we focus on closing the merger with USBTC is the right approach, as we expect to create a strong self-mining, hosting, managed infrastructure operations, and HPC organization in the long term.”

Hash Rate All-Time Highs

With some help from cost-sensitive miners turning rigs back on, Bitcoin’s mean 7-day hash rate has once again broken to new all-time highs, with a weekly average of 303 EH/s.

With network hash rate pushing to new highs, the next difficulty adjustment is projected to be +12.0%, likely occurring on February 25.

The expected ratchet upward in mining difficulty will take away some of the relief that operations were feeling in recent weeks, due to the increase in USD-denominated revenue. Miner revenue denominated in bitcoin terms will once again head to new lows.

As hash rate, and subsequently mining difficulty, continue to stretch toward highs, older generation machines and inefficient operations will continue to get squeezed at the expense of more efficient businesses with newer generation mining machines.

Public Miner Performance

Public miners have been among the best performers in the equities markets year-to-date, with shares of Iris Energy leading the way at an impressive 255% gain, and shares of Bitfarms, Hut 8 and HIVE Blockchain following.

These companies’ performance against bitcoin is equally as impressive because every major public miner in our closely followed basket has outperformed their baseline (BTC) to start 2023.

On longer time horizons, we find bitcoin outperformance to be a very tall order, given the ruthless competitiveness of the global mining industry, coupled with a programmatically decreasing block subsidy that continues to occur every 210,000 bitcoin blocks — approximately once every four years.

Regardless of the next direction taken by bitcoin or equity markets more broadly, mining equities will continue to offer investors volatility galore, with the right market conditions presenting much of that volatility in the form of upside appreciation.

Final Note

Global investors will be hard-pressed to find anything on the planet that continues to flourish and grow at a comparable pace to the bitcoin hash rate. The story here that has been unfolding for more than a decade’s time is the evolution of the strongest, decentralized computing force the world has ever seen, yet most miss the forest for the trees.

Short-term market correlations and exchange-rate performance aside, bitcoin remains the world’s singular best chance at achieving a globally neutral, monetary protocol for final settlement.

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