Tech
Blockstream is betting on Bitcoin’s comeback as it accumulates cryptocurrency mining rigs
Bitcoin developer Blockstream Corp. is betting that the world’s most valuable cryptocurrency is poised for a massive rebound and is buying up Bitcoin mining rigs so it can sell them for a profit later if the prediction holds true.
Montreal-based Blockstream was one of the first Bitcoin infrastructure companies, conceived in 2014 by CEO and co-founder Adam Back, believed among industry insiders to be Satoshi Nakamoto, the pseudonymous creator of Bitcoin – speculation dispelled from Back.
Now, the company is looking to take advantage of Bitcoin’s upcoming software update – dubbed rather ominously the “halving” – which it expects will spur a rally in the price of the digital asset, in turn pushing up the price of computers specialized or application-specific. integrated circuit machines, used by miners to generate Bitcoin.
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“We’ve done quite a few money buying and selling miners, then we look at the market and see that there really is a financial opportunity here,” Blockstream CEO Adam Back said in an interview.
While the market prices of Bitcoin and ASICs have shown high correlation, ASIC prices tend to undervalue Bitcoin in bear markets and overshoot them in bull markets, suggesting potential upside when denominated in Bitcoin, the firm said in a statement Tuesday.
A glut of mining machines flooded the market last year as the price of Bitcoin collapsed, while major cryptocurrency lenders like New York Digital Investment Group also liquidated machine-backed loans. After a rebound of around 70% in the first quarter, the price of Bitcoin remained stuck at around $30,000 for months. Bitcoin reached an all-time high of nearly $69,000 in November 2021.
But Blockstream sees a window of opportunity as Bitcoin’s halving approaches. Scheduled for early 2024, the event that takes place every four years cuts by half the amount of coins miners can earn to generate Bitcoin, helping maintain the token’s value by reducing supply.
Since such rewards represent the main source of income for miners, the update is likely to spark an arms race to buy new machines to better compete for the limited supply of tokens. Blockstream said it aims to raise $5 million through a newly launched investment vehicle so it can buy, store and then sell ASICs on the market at a premium should the price of Bitcoin rise in the run-up to the halving .
“We think there’s a huge price correction coming where we’ll see ASICs get back to where the Bitcoin price it would be when the capacity comes to market,” said James Macedonio, global head of mining sales and business development at Blockstream.
The company’s investment vehicle, called The Blockstream ASIC (BASIC) Note, is issuing its Series 1 notes at $115,000 each, according to Tuesday’s filing. The securities will be offered on Blockstream’s Liquid Network, with the first tranche made available today.
The fundraising follows Blockstream’s $125 million convertible bond and secured loan in January to expand its Bitcoin mining co-location services, under which the company hosts and operates mining hardware at data centers on behalf of customers. The company also raised $210 million at a $3.2 billion valuation in 2021 to promote its mining products and services and has already received backing from LinkedIn co-founder Reid Hoffman.
Bitcoin mining is an energy-intensive process in which miners use specialized computers to validate Bitcoin transactions on the blockchain in exchange for symbolic rewards. A single Bitcoin mining rig can cost thousands of dollars, meaning large-scale miners often raise funds to purchase the machines by selling shares in their businesses or securing debt financing. Lenders also use mining machines as collateral for loans.
The value of mining machines tends to depreciate significantly over time as manufacturers like Bitmain and MicroBT launch new, more energy-efficient models every few years. Miners typically upgrade their fleets of mining machines between these periods, as they compete against each other to earn Bitcoin rewards.