Publicly traded block reward miners make bad bet going all-in on BTC

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In poker, a common train of thought is that being the aggressor is better than being the caller. Why, since there is always the possibility that your opponent folds.

Publicly traded block reward miners seem to have noted this high-risk strategy and are adopting this tactic in their approach to earning revenue from the BTC network. Lately, there have been several headlines where publicly listed block reward miners—HIVE Blockchain, DMG, Argo, and Riot Blockchain—went all-in on the BTC network by expanding their fleet of ASIC hardware miners.

The all-in bet on BTC isn’t the show of confidence one might initially assume. It is really a ‘Hail Mary’ on their bet in case the market does not respond with the magical price increase they’re projecting. Their leaders realize they need a Plan B to offset the reduction in token awards, so they are using the “Last Man Standing” strategy as insurance in case their earnings decline which we expect.

Last Man Standing strategy

The “Last Man Standing” strategy is credible and seen in other industries so not uncommon.

At first glance, this strategy makes sense to those that are not familiar with blockchain technology and principles. There is a broad consensus that the block reward mining sector is on the verge of shrinking as participants exit the sector now that the halving has erased their profit margin. Online you’ll find several articles predicting the miner capitulation or “mining death spiral.”

Many of these firms have publicly stated that their game plan includes surviving long enough to reap a higher share of the block subsidy reward once others leave. They are structuring themselves to be in position for this perceived windfall. If the price “moons,” that’s even better. 

The other side of going all-in on BTC is these companies have a much shorter time frame to find their prospective success. 

Public companies reporting quarterly results realize they will not have to face the full fire from shareholders until after Q3 when they report the full impact of the halving on their balance sheets. Until then, they are living on borrowed time, hoping for divine intervention and smaller competitors to drop out. 

They made this reckless bet of banking on BTC-go-up against the backdrop of a global pandemic and possible global recession. 

Block reward miners hardware expansion brings additional OPEX and CAPEX costs. It is a fallacy that piling on hash equates to increase profits. Realistically, the rosiest scenario has publicly traded companies mostly running at cost or slightly underwater. They won’t be able to pay back the new hardware for two to four years assuming they survive the blood bath. 

Most block reward mining companies are now unprofitable after the BTC halving failed to see the token appreciate in value. Even those miners lucky enough to have secured very low cents/KWh electricity rates are struggling to breakeven. Adding additional ASIC servers means higher costs for less revenue. 

Their nightmare scenario is unfolding as the price has remained relatively stagnant since the enthusiasm and FOMO they predicted hasn’t shown up. I have not even discussed the recent news that the Chinese government plans to subsidize electricity costs for block reward miners. This alone could be a death blow to the publicly traded North American block reward miners. More on that in another article.

Publicly traded block reward mining companies are okay to blur the lines between gambling and strategic planning a little longer. Soon we’ll see how long their investors will tolerate this approach before they cash out and move their wealth someplace else.