Bitcoin miners

Bitmain is helping miners to refinance their debt.  Although most people might not expect that a company headquartered in Beijing would be so focused on Bitcoin mining, the company that produces so many ASICs has a huge opportunity to capitalise on the market – last year they made $5.6 billion in revenues.

How does miner debt affect  S2F?

Plan B’s Stock to Flow model is one of the most famous models for predicting future Bitcoin price performance.

The S2F model reflects the ratio of new Bitcoin mined to the currently preexisting supply. It is one of the most reliable metrics for calculating the scarcity of an asset

For example, a S2F of 1 means that the inflation rate for a particular year is 100%, as the new issuance is the same as the circulating supply.

Bitcoin’s current S2F is currently just shy of 60, and will rise to over 100 after the next halving, making Bitcoin more scarce than real estate.

Bitcoin miners are inveterately bullish on Bitcoin, and when they choose to raise debt (borrow from the future) they do so in order to reinvest into their business without being forced to sell their BTC.

This means that the effective inflation rate is actually even lower than the S2F model would stipulate, as miners wouldn’t be selling any of their Bitcoin.

In fact, it could even mean that the S2F goes negative.  If miners are able to raise enough capital then not only can they not sell their BTC to pay for electricity and expenses, but they can scale up their operations to mine more, and even become net buyers of BTC.

Chinese involvement with Bitcoin miners

In 2021, the Chinese banned Bitcoin again.  This wasn’t the first time they’d done it, and it probably won’t be the last time they’ll do it, but the news sent shockwaves throughout the industry.  This time, they outlawed Bitcoin mining.

Even though one can geographically map a lot of the source of hash rate, and a fair amount still seems to be coming from China, it seems that there has been a huge decline since the ban.

ASICs were quickly loaded into the back of lorries and sent out of the country to mine elsewhere, either in nearby locations such as Siberia, Kazakhstan, and Mongolia, or further afield, such as Texas (which appears to be growing into the global capital of Bitcoin mining).

The Saylor strategy

Michael Saylor, the founder and former CEO of Microstrategy, has adopted an aggressive stance for accumulating Bitcoin.

At first, Microstrategy began to accumulate BTC with their cash balance 2020 as part of a strategy to defend the company against the pernicious effects of inflation.

Saylor explained to other CEOs and business professionals the ways in which they could adopt a Bitcoin strategy into their own businesses, and has since been educating leaders around the world to follow suit.

Since then, Microstrategy has taken a more aggressive stance on

Publicly-listed miners

Publicly-listed miners such as Marathon and Riot have a huge advantage over other miners when it comes to the opportunities for fundraising and raising debt.

Private miners may have a lot of difficulty, but when a miner is public they have more than just an economy of scale to galvanise their business.

Being publicly-listed on the stock exchange, typically the Nasdaq, means that a company can access far more capital and at far better rate of interest – allowing them to outcompete their competition.

This could potentially pose a problem for centralisation of mining pools in the future, since economies of scale can dominate a market quite quickly, and in some ways this is worse than the risks posed by Proof of Stake.

Refinancing debt

There is no doubt that Bitmain’s decisions to help miners to refinance their debt is a decision to become a part of this process.

Miners had an extremely profutably 2021, and in many ways the mining industry became mired in hubris. The crash from $69k to $17.5k was brutal for a lot of miners, especially those who were indebted.

Many miners are now out of business, because they did not have the adequate support available to continue their operations. Many of them were forced to sell their BTC against their wishes to cover utility costs overheads.

Bitmain’s decision to assist miners to refinance is a saviour for many in the industry, who otherwise would have struggled enormously.

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