Bitcoin (BTC) miners have raised $11 billion in convertible debt over the last year, reflecting a significant pivot towards developing artificial intelligence data centers. This surge in convertible bond deals follows the April 2024 Bitcoin halving, which reduced the block reward by 50%.
Miners completed 18 convertible bond deals after the halving event. The average convertible bond issue size more than doubled compared to the previous year. Notably, mining companies MARA, Cipher Mining, IREN, and TeraWulf each successfully raised $1 billion through single bond issues. Some of these offerings featured remarkably low coupons, even as low as 0%, indicating investors' readiness to forgo interest payments in anticipation of potential equity upside. In contrast, most convertible bonds issued by Bitcoin miners in the preceding year ranged between $200 million and $400 million.
The diversification into AI data centers is a strategic response by miners to address revenue shortfalls experienced after the April 2024 halving. The mining industry continues to navigate a challenging business environment, influenced by tokenomics, trade policies, supply chain disruptions, and escalating energy costs.
Miners Brace for Hashrate War and Energy-Hungry AI Operations
Miner debt has seen a dramatic increase, surging by 500% over the past year to a total of $12.7 billion. This substantial rise in debt is highlighted in a recent report from investment manager VanEck.
Analysts at VanEck, Nathan Frankovitz and Matthew Sigel, pointed out that these elevated debt levels underscore a fundamental challenge within the mining industry: significant capital expenditures required for mining hardware. This hardware often necessitates annual upgrades to maintain competitiveness.
"Historically, miners relied on equity markets, not debt, to fund these steep capex costs," the analysts stated. They characterized the substantial hardware costs required to remain competitive as a "melting ice cube."
The Bitcoin mining hashrate, which represents the total computing power dedicated to securing the Bitcoin network, continues its upward trend. This increasing hashrate compels miners to allocate ever-greater computing and energy resources to maintain operations.
In October, US Energy Secretary Chris Wright proposed a regulatory change to the Federal Energy Regulatory Commission (FERC). This proposal aims to allow data centers and miners to connect directly to energy grids. Such a direct connection would enable these energy-intensive operations to meet their energy demands. Simultaneously, they could function as controllable load resources for the energy grid, thereby helping to balance and stabilize the electrical infrastructure during periods of peak demand and manage excess energy during low demand periods.