The boom in the share price of artificial intelligence (AI) and high-performance computing (HPC) companies since September has delivered extraordinary returns for bitcoin miners expanding into these industries, but growth comes at a price.
Bitcoin is up just 10% this year, and with the bubble popping in corporate bitcoin coffers in recent months, the narrative has shifted to miners transforming their business models. Miners have been increasingly active in the debt markets as they seek to finance ambitious builds of their AI and HPC businesses.
According to The MinerMag, their combined debt and convertible note supply hit record levels in the third quarter with estimates as high as $6 billion. That increases the risk of default and investors will now be focused on seeing meaningful revenue generation from the pivot.
TerraWulf ( WULF ), MARA Holdings ( MARA ), and Cipher ( CIFR ) collectively raised billions through convertible bonds during the quarter, while CleanSpark ( CLSK ) tapped lines of credit to bolster their balance sheets.
The momentum has entered the fourth quarter. TerraWulf launched a private placement of $3.2 billion of senior secured notes, reportedly the largest single offering ever by a public miner, according to The MinerMag. Shortly after, IREN (IREN) issued a $1 billion convertible bond and Bitfarms (BITF) announced a $300 million convertible note.
Some of these instruments, such as IREN’s, have a zero coupon structure. Others, like TerraWulf’s latest issue, have higher costs, with a coupon of 7.75%, which equates to an annual interest expense of approximately $250 million. This far exceeds the company’s 2024 revenue, which was just $140 million, according to The Miner Mag.
Is this time different?
During the bear market of 2022, when the hash price collapsed as bitcoin fell by 70%, lenders seized machines that had been used as loan collateral, a technique seen when Core Scientific (CORZ) filed for Chapter 11 bankruptcy.
MinerMag suggests that the AI-HPC focus uniquely sets the current debt-driven fundraising cycle apart. By pursuing diversified income, the miner may be able to reduce the risks.
The market rewards higher valuations for miners pivoting from pure-play bitcoin operations to AI/HPC businesses. While convertible bonds still result in shareholder dilution, the pivot also attracts a new investor base.
CoinShares Bitcoin Mining ETF (WGMI), often seen as a proxy for the broader bitcoin mining sector, is up 160% year-to-date.
