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After acquiring BlockFi, will FTX target crypto miners next?

Posted: 12 July 2022 1:39 pm

Crypto miners could be acquisition targets as “crypto winter” continues. And FTX is just one of the companies looking for acquisitions.

Crypto miners face a double whammy in the current crypto meltdown: Crypto assets have plunged in value, and the cost of electricity has soared in multiple countries. Because of that, some crypto mining companies are facing challenges and are either selling their mined cryptocurrencies at a loss or considering other options, like being acquired by other companies.

Sam Bankman-Fried’s FTX’s already signed a deal that gives FTX the option to acquire the crypto broker BlockFi. Only a few weeks ago, FTX announced they have $2 billion ready to acquire struggling crypto companies. This might include crypto mining companies.

Polygon and Binance are also mentioned as potential acquirers of the crypto space as the downturn has many companies struggling.

With crypto miners beaten down during what’s being called a “crypto winter,” they could be an investment worth considering as acquisitions often carry a premium for shareholders. That’s especially true for investors who don’t want to directly own cryptocurrencies.

FTX looking at crypto mining companies?

In a recent Bloomberg interview, Sam Bankman-Fried said he’s open to acquiring companies in the crypto-mining industry in an effort to stop contagion amid the prolonged bear market.

“There might come along a really compelling opportunity for us — I definitely don’t want to discount that possibility,” Bankman-Fried said.

After the interview raised the possibility, Bankman-Fried clouded the issue, saying in a Twitter post that “we *aren’t* really looking into the [crypto mining] space.”

FTX has already acted as a lender of last resort during the crypto winter as well as an acquirer. The company has provided credit lines to Voyager Digital and BlockFi, with the option to buy BlockFi for as much as $240 million.

“We’re starting to get a few more companies reaching out to us,” Bankman-Fried said.

Crypto mining is an expensive endeavor

Crypto mining involves using banks of computing power to run complex algorithms that generate new coins.

Mining profitability is measured as daily dollars earned per terahashes per second (Th/s). This number has reached lows as seen in October 2020, according to Bitinfocharts. At the moment, Bitcoin mining profitability is $0.0956 per day for 1Th/s.

The main issue with some crypto mining companies is that they used loans to set up their mining operations. Given the cost of the systems and electricity, and the big decline in the value of assets held as crypto, a growing number of these companies are underwater, according to a report from Bloomberg. Some have had to start selling their crypto assets at current low prices.

How top crypto mining companies are facing the situation

Marathon Digital Holdings (MARA) is a Nevada-based company, and it’s one of the largest publicly traded Bitcoin miners with a market cap of about $830 million. The company is open to the possibility of being acquired for the right price, its chief executive officer said in April.

“If somebody offers us a huge premium over our market cap, I have to take it under consideration and that may be the right thing to do for the investors,” Marathon Digital CEO said in an interview with Bloomberg.

It’s worth noting that Marathon Digital hasn’t sold any BTC since October 2020. The company holds 10,055 BTC worth around $200 million.

On the other hand, Riot Blockchain (RIOT) sold 300 BTC and CleanSpark (CLSK) sold 328 in June. Core Scientific (CORZ) has sold 78.6% of its BTC holdings for $167 million. Bitfarms (BITF) is another company that sold a huge chunk of over 3,000 BTC during the same period.

Crypto mining companies are known to investors as a crypto proxy — you invest in them instead of directly investing in Bitcoin. And they’ve suffered with the crypto of late; CleanSpark is down 56% in 2022, while the others mentioned here are all off more than 77%.

If you believe the crypto space will bounce back, they’re worth considering as an alternative, with the added possibility that some of these companies could be acquired at a premium above their current market value.

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Kliment Dukovski owns cryptocurrencies as of the publishing date.

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