Public Bitcoin Miners and the Strategy of Holding Bitcoin

Public Bitcoin miners have increasingly adopted a strategy of holding Bitcoin on their balance sheets. This approach, also known as the Bitcoin treasury strategy, has drawn significant attention from investors and industry experts alike. 

One company that stands out in this trend is MARA Holdings, known for holding the largest Bitcoin treasury among public miners. As of August 31, 2024, MARA held a staggering 25,945 BTC, positioning itself as a leader in this space. This article explores MARA’s strategy, the reasons behind its success, and the risks associated with such an approach.

MARA’s approach to Bitcoin is twofold: the company holds the Bitcoin it mines, but it also purchases additional Bitcoin using funds raised from financial markets. This strategy allows the company to accumulate more Bitcoin than it could through mining alone. 

In August 2024, MARA raised $300 million through a convertible senior notes offering and used $245 million of that to acquire 4,144 BTC. This wasn’t MARA’s first time using raised capital to buy Bitcoin. 

In January 2021, the company raised $200 million through an at-the-market (ATM) offering and allocated $150 million to purchase 4,812 BTC at an average price of $31,168 per Bitcoin. Before these moves, MARA, then known as Marathon Patent Group, held only 126 BTC in December 2020.

For MARA, holding Bitcoin offers several advantages. Historically, Bitcoin has outperformed many traditional assets, making it a potentially lucrative investment. 

By keeping Bitcoin on their balance sheets, miners like MARA can hedge against rising operational costs, especially after the April 2024 Bitcoin halving event, which nearly doubled the cost of mining a single Bitcoin.

During bullish markets, holding Bitcoin can also generate additional value for the company, as the price of Bitcoin typically rises over time.

Bitcoin’s fixed supply of 21 million coins also makes it a desirable store of value. As governments continue to print more money, leading to inflation, many companies see Bitcoin as a way to preserve value. 

Unlike fiat currencies, which can be devalued through inflation, Bitcoin’s scarcity ensures that its value remains more stable in the long term.

Another key reason companies like MARA hold Bitcoin is its potential to increase shareholder value. Traditionally, companies return excess cash to shareholders through dividends or share buybacks. 

However, these methods often come with disadvantages, such as double taxation on dividends. In contrast, holding Bitcoin can provide higher returns, especially during periods of price appreciation.

For MARA, the ultimate goal of this strategy is to maximize Bitcoin per share. As the value of Bitcoin increases, the company’s book value per share also rises, which can drive up the stock price. 

This explains why MARA and other companies that hold significant amounts of Bitcoin often trade at a premium to their net asset value.

When discussing Bitcoin treasury strategies, it’s important to mention MicroStrategy, a company that has been a pioneer in this space. Led by Michael Saylor, MicroStrategy has aggressively purchased Bitcoin, positioning itself as a major player in the Bitcoin market. 

As of August 2024, MicroStrategy’s stock had outperformed key tech stocks like Nvidia, with cumulative returns reaching 1,206%. The success of MicroStrategy’s Bitcoin strategy has inspired other companies, including MARA, to adopt similar approaches.

MicroStrategy’s success highlights the potential rewards of holding Bitcoin, but it also serves as a reminder of the risks. Like MARA, MicroStrategy has raised funds to buy Bitcoin, using convertible notes and other financial instruments. 

While this strategy has paid off in a bull market, it also exposes the company to significant risks if Bitcoin’s price declines.

While holding Bitcoin has its advantages, it also comes with risks. One of the biggest challenges for companies like MARA is the volatility of Bitcoin’s price. 

If the price of Bitcoin falls, the value of the company’s Bitcoin holdings will decrease, which could negatively impact its stock price and enterprise value. This is especially concerning for companies that have used debt to purchase Bitcoin, as they may be forced to sell their Bitcoin at a loss to cover liabilities.

Another risk is the competitive nature of Bitcoin mining. As more miners enter the market and the difficulty of mining increases, profit margins can shrink. 

Many miners are investing heavily in expanding their capacity and upgrading their mining equipment, which comes with significant costs. If Bitcoin’s price doesn’t rise enough to offset these expenses, miners could find themselves in financial trouble.

Moreover, the Bitcoin treasury strategy essentially creates leveraged exposure to Bitcoin. In a bull market, this can amplify returns, but in a bear market, it can also magnify losses. 

Only miners with strong risk management strategies and sufficient liquidity will be able to weather the downturns and achieve long-term success.

For public miners like MARA, success with a Bitcoin treasury strategy depends on a few key factors. First, they need to ensure they have enough liquidity to cover short-term liabilities.

This means that they shouldn’t rely entirely on Bitcoin to fund their operations. Holding a portion of their mined Bitcoin while also maintaining a healthy cash reserve can help them stay afloat during market downturns.

Second, miners need to carefully consider how they raise capital to buy Bitcoin. For example, MARA’s $300 million convertible notes carry an interest rate of just 2.125%, which is relatively low given Bitcoin’s volatility. By securing low-cost financing, MARA can minimize the risks associated with borrowing to buy Bitcoin.

Finally, miners need to be prepared for the long term. Bitcoin’s price can be unpredictable in the short term, but over the long term, it has historically trended upwards. Companies that can hold onto their Bitcoin through market cycles stand to benefit the most from the long-term appreciation of the asset.

MARA Holdings has positioned itself as a leader among public Bitcoin miners by adopting a bold Bitcoin treasury strategy. By holding both mined and purchased Bitcoin on its balance sheet, MARA has attracted the attention of investors seeking exposure to Bitcoin through traditional financial markets. 

While this strategy comes with risks, particularly in the volatile world of cryptocurrency, it also offers significant rewards for companies with the right risk management and long-term vision. As Bitcoin continues to evolve, MARA and other public miners will play a key role in shaping the future of the cryptocurrency market.