Investing in Mining IPOs

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Steve Jones
Posts: 1
Joined: Fri Sep 06, 2019 2:03 am

Investing in Mining IPOs

Post by Steve Jones » Fri Sep 06, 2019 2:47 am

Hi all

I've read Steve's posts about mining centralising into huge warehouse farms and was having a look at some of the publicly listed mining companies
Two that caught my eye were BITFARMS and ARGO BLOCKCHAIN, in that they actually seem to have a slight chance of not going under within 12 months after the halving next year.

These are miners both operating in Canada with electricity costs below $0.04/kWh or maybe even $0.03/kWh.

They both have plans to expand their hash power to up to 2EH in the next year. This would take them each to potentially owning 1% of the global hash power in Bitcoin.

The average daily revenue paid out to miners over the past 2 years has been $15m per day. Therefore, with 1% of the hash power, these companies would be making $150k in revenue per day. That's max $55m/year.

With an optimistic 70% yield (inc. all costs) that automatically reduces this to just below $40m. In order to add 1EH in hash power they will need about 17k S17s. This is an investment of $39m minimum at $2400 per miner. So it looks like these companies will be struggling to break even in the near future. But they could maybe survive with a few fund raising rounds.

What I do wonder though, is if these companies manage to survive and continually expand over the next 6-7 years they could perhaps conceivably be running up to 5% of the hash power in the BTC network. If BTC actually continues to go up, that's 5% of the mining of a potentially a several trillion asset. That sounds all well and good when you frame it like that (providing they don't go bust next year) but..

The other issue is their reliance on external hardware manufacturers like Bitmain. Bitmain will be selling their miner at 3-4x manufacturing price, which automatically eats into the margins and gives their own mining farms a huge advantage. Even then, if you look at the leaked stuff from Bitmain's IPO documents, they had about $3b in revenue from selling hardware and about $200m from mining. So selling the hardware seems to be a much larger business and mining seems for suckers.

So what are your thoughts on investing in crypto IPOs like these? They will surely have to have contingency strategies to expand into other coins and it's much higher risk than just buying the coins. Even though the numbers seem shaky now, the surviving Gold or Oil miners (or in fact any commodity) have seen a much greater return than just buying the commodity if you were able to avoid the 95% that went bankrupt.

I also personally don't think crypto is going to go away, but I don't think Bitcoin will ever go to $500k once stocks, futures and other financial casino games are involved. Why would Bitcoin continue to go up when you don't have to buy it to get exposure? And these IPOs seem to rely on the fact that Bitcoin will go up in the future.