The skyrocketing share prices of artificial intelligence (AI) and high-performance computing (HPC) companies since September have brought incredible profits to Bitcoin miners expanding into these industries, but growth has come at a price.
Bitcoin BTC$107,764.56 It is up just 10% this year, and after the bursting of the bubble in corporate Bitcoin vaults in recent months, the conversation has turned to miners changing their business models. Miners are becoming increasingly active in the bond market as they seek to fund ambitious build-outs of their AI and HPC businesses.
The company’s total debt and convertible debt issuance reached a record level in the third quarter, with an estimated value of $6 billion, according to The MinerMag. This increases the risk of default and will force investors to focus on generating meaningful returns from pivots going forward.
TerraWulf (WULF), MARA Holdings (MARA), and Cipher (CIFR) jointly raised billions of dollars through convertible debt during the quarter, and CleanSpark (CLSK) utilized a line of credit to shore up its balance sheet.
That momentum continued into the fourth quarter. TerraWulf has launched a private placement of $3.2 billion in senior secured notes, according to The MinerMag. This is reportedly the largest single offering ever by a public miner. Shortly after, IREN (IREN) issued a $1 billion convertible note and BitFarms (BITF) announced a $300 million convertible note.
Some of these products, such as IREN, have a zero-coupon structure. Other issues, such as TerraWulf’s latest issue, have higher costs, with a 7.75% coupon and annual interest expense of approximately $250 million. This far exceeds the company’s 2024 sales, which totaled just $140 million, according to The Miner Mag.
Will it be different this time?
During the 2022 bear market, when Bitcoin fell 70% and Hashprice collapsed, lenders seized machines used as collateral for loans, a tactic seen when Core Scientific (CORZ) filed for Chapter 11 bankruptcy.
MinerMag suggests that the focus on AI-HPC makes the current debt-backed funding cycle unique. By pursuing revenue diversification, miners may be able to reduce risk.
The market is rewarding higher valuations for miners who pivot from pure Bitcoin operations to AI/HPC businesses. While convertible debt still dilutes shareholders, the pivot is also attracting a new class of investors.
The CoinShares Bitcoin Mining ETF (WGMI) is often considered a proxy for the broader Bitcoin mining sector and is up 160% year-to-date.
