Trump family's $314M bitcoin mining deal underscores new market reality

Catch up quick: The Guardian first reported last week that American Bitcoin received a remarkably patient deal from China-based Bitmain — it bought 16,299 machines in exchange for a pledge to provide $314 million worth of bitcoin within two years.

Yes, but: While a sweet deal, some in the industry don't view the terms as especially unique.

• It is "not unusual at all to see these kind of terms," Chris Brendler, a senior analyst who covers bitcoin mining at Rosenblatt Securities, told Axios.
• Coming out of the 2021 cycle, a lot of miners fell behind on debt financing when bitcoin price collapsed, which has caused everyone, including Bitmain, to get creative about deal structures these days, Brendler said.

The big picture: While everyone knows that bitcoin price has been on a long march upward, few realize that that the profitability of mining, on the other hand, has fallen off a cliff.

• When bitcoin set an all-time high around $70,000 in late 2021, a miner was likely to earn about $400 per day for every petahash (a measure of computing power) it had on the network. Bitcoin set a much higher high last week at $126,000, but lately miners have only been earning about $50 for the same amount of power.
• The mining industry is a knife fight today.

The impact: The market for ASICs designed for bitcoin mining has softened badly over the last several years, with prices consistently dropping going all the way back to 2021.

Zoom out: Bitmain is by far the global leader producing mining equipment. It is to bitcoin mining something like NVIDIA is to AI, but, unlike AI, the days of easy money for new entrants in bitcoin mining are long over.

• In fact, many Bitcoin miners are hedging their bets by getting into AI rather than deepen their exposure to the low-margin mining business.

Between the lines: In the 2021 boom, mining was quite profitable. In those days, Brendler said, Bitmain didn't ship ASICs that weren't paid for up front.

• Those terms, however, nearly sank many of its customers once the bust came.

State of play: "They completely turned around in terms of how these things are negotiated with Bitmain, much friendlier towards the buyer," Brendler said.

• Not only can other long-term purchase options be found for payment in bitcoin, but also other interesting set-ups, such as buying machines in bitcoin but securing a call option to buy it back if the price goes up, preserving upside.

Hut 8, the majority owner of American Bitcoin since creating the company with the Trumps in March, believes the bitcoin-based purchase arrangement "is consistent with industry standards," and "reflects Bitmain's confidence in Hut 8's operational capabilities," Hut 8 spokesperson Gautier Lemyze-Young told Axios.

• American Bitcoin has taken over the majority of Hut 8's bitcoin mining operations now, he explained.
• Hut 8 also says the deal with Bitmain was originally made with Hut 8 before the formation of American Bitcoin, and back before the November election.

Threat level: Bitcoin mining is the spine that holds up the whole crypto industry, so the fact that securing the original blockchain network is barely profitable these days might be cause for some concern.

The bottom line: The pledge deal really meets at the intersection of two narratives: first, the Trump family's influence but also the shaky economics of the companies securing Bitcoin's $2 trillion market cap.