Aug 9, 2022 - Economy

Bitcoin miner stung by price drop, but focusing on technology

Illustration of a pick axe hitting a Bitcoin with pieces flying everywhere.

Illustration: Aïda Amer/Axios

One of the U.S.'s biggest publicly traded crypto mining companies showed how well it fared over the rough-and-tumble months of April to June. It was mostly not good.

Why it matters: Mining companies are considered the last line of defense, often the last to sell amid downturns, because their business models can withstand the volatile swings of the digital assets they mine with high-powered computer equipment. But they have recently shown signs of stress.

Driving the news: Marathon Digital Holdings yesterday said losses widened in the second quarter to $191.6 million, due in large part to a $127.6 million impairment on its bitcoin holdings as prices declined 56% in the period.

  • But it increased its bitcoin holdings to 10,127 BTC, producing 707 in the quarter — an 8% increase from the same period last year, but a 44% drop from the prior three months.

Details: It suffered from operational challenges related to rising energy costs, maintenance issues and weather impacting production.

  • Rigs at Marathon's Hardin facility in Montana had maintenance issues and then were taken offline due to a storm.
  • The company also experienced delays via its host, Compute North, in Texas.

By the numbers: Marathon reported $24.9 million of revenue in the second quarter, about a 15% decline from the prior year quarter of $29.3 million.

  • Cost of revenue — energy, hosting and other expenses — rose to $16.7 million compared to $4.1 million in the prior year period.
  • The firm also recorded a total $207.3 million expense related to its holdings in its investment fund and impairments on its digital currencies.

The big picture: But perhaps the worst is in the rearview mirror, as the mining giant continues on its ambitious path to raise its hash rate to 23.3 exahash per second, more than 5x that of its April-end processing power of roughly 4 exahash (a miner's hash rate is a measure of its efficiency).

  • Fred Thiel, Marathon’s chairman and CEO, said during the company's conference call that the outlook for the company's business looks better.

What others are saying: Generally speaking, the economics for mining has improved lately, Chris Brendler, an analyst at D.A. Davidson, tells Axios.

  • "Bitcoin prices are bouncing, and the network hash rate growth has closed off a bit," Brendler says, adding that publicly traded companies of Marathon's size still appear to have financial flexibility — a chief concern amid the onset of crypto winter.
  • "Capital markets aren't totally shut to these folks," he says.

What they're saying: "Given the groundwork we laid during the quarter and the progress we have made since, we are optimistic that Marathon’s operational and financial positioning is improving," Thiel said in a statement.

  • He highlighted new, more powerful equipment that would go online to help achieve its expansion plans.

Between the lines: Greg Lewis, an analyst at BTIG, during the earnings call homed in on the company's exit of its Hardin facility, asking what it might have cost to move its rigs instead of selling and replacing them with newer equipment elsewhere.

  • "The miners that are at Hardin, if you go back into our filings, our cost to acquire were somewhere in the low $20s per terahash, so they could be sold for a small loss or a near breakeven," Thiel said in response to the question.
  • "The cost to move them, if we were to relocate, would be $1 million to $1.5 million to do that. We're focused on deploying the latest machines; so we can have a clean break from Hardin. So we can move on," Thiel said.

What we're watching: Thiel said more than once that Marathon will hit its 23.3 exahash target, but pushed out the timeline to the middle of 2023.

The bottom line: Marathon has been struggling with delays for a while. In May, the company was still projecting hitting its long-term targets by early 2023, an investor presentation shows.

What's next: Peer mining company Core Scientific is set to report after the market's close on Wednesday.

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