According to data from investment firm VanEck, in the past 12 months, Bitcoin miner debt has increased from $2.1 billion to $12.7 billion, as miners accelerate to meet the demands of artificial intelligence and Bitcoin production.
According to VanEck analysts Nathan Frankovitz and digital asset research director Matthew Sigel in the October "Bitcoin Chain Check Report," if miners fail to continuously invest in the latest equipment, their global hash rate share will decline, leading to a reduction in the daily Bitcoin (BTC) rewards they receive.
"This stems from the difficulty in miners' income being sustainable, as it relies almost entirely on the price of Bitcoin, which is speculative. Importantly, equity is often a more expensive form of capital than debt," Frankovitz and Sigel added.
Frankovitz and Sigel further stated, "Since miners' income is almost entirely dependent on Bitcoin prices, it is difficult to hedge against risks. Moreover, Bitcoin prices are highly speculative, and equity financing typically costs more than debt financing."
An increasing number of Bitcoin miners are diversifying their income by shifting energy capacity towards artificial intelligence (AI) and high-performance computing (HPC) hosting services. After the halving in April 2024, mining rewards will drop to 3.125 Bitcoins, impacting overall profitability.
"By doing so, miners gain a more predictable cash flow supported by multi-year contracts," Frankovitz and Sigel stated.
In October, Bitfarms completed a $588 million convertible bond issuance, with the funds allocated for HPC and AI infrastructure development in North America.
Miner TeraWulf also announced the issuance of $3.2 billion in senior secured bonds to expand its data center located in the Lake Mariner area of New York.
IREN also completed a $1 billion convertible bond issuance in October, with part of the funds designated for general corporate purposes and working capital.
Miners are the cornerstone of the Bitcoin network, responsible for verifying and recording all Bitcoin transactions into new blocks. The more miners there are, the higher the hash rate, and the stronger the network security.
According to Frankovitz and Sigel, the shift of miners towards AI and HPC hosting will not affect network hash rate, "The priority demand for electricity from AI actually benefits the development of the Bitcoin industry."
They pointed out, "Bitcoin mining remains a convenient way to quickly monetize excess electricity in remote or developing energy markets, effectively supporting the development of data centers designed for AI and HPC convertibility."
In their report, Frankovitz and Sigel noted that several miners have revealed they are exploring ways to monetize excess electricity capacity during periods of low demand for AI services.
Frankovitz and Sigel indicated that this helps miners offset or even eliminate the costs of expensive backup power sources, such as diesel generators.
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Original: “Bitcoin (BTC) Miner Debt Surges 500%, Miners Actively Prepare for Hash Rate Battle”
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