$500 million and rising: Institutional investors place big bets on bitcoin mining

Institutional investors in North America have allocated more than half a billion dollars to top-of-the-line bitcoin miners over the past few months alone, based on The Block's estimates.

At least ten institutions, including several publicly-listed companies, have announced that they placed bulk pre-orders for the most powerful mining equipment since October when bitcoin's price started to break through $11,000.

This is part of a broader effort by North American institutions to boost the region's mining output and rival the dominance of China-based facilities.

In addition to hardware purchases, institutions are also ramping up fundraising efforts, with the U.S. mining pool Luxor announcing on Tuesday a $725,000 pre-seed round backed by Argo Blockchain, Celsius Network and several angel investors.

The Block's summary is based on recent purchase announcements and may not be entirely comprehensive. Still, it demonstrates how these companies have already made prepaid purchases for over 200,000 units of the latest-generation bitcoin ASIC miners.

The estimate does not include orders from other institutions such as Bitfarm, The9 and Chinese sport lottery site 500.com, which announced purchases of earlier hardware generations, such as Bitmain's AntMiner S17 or MicroBT's WhatsMiner M31S.

Digging into the details

The hardware purchase history spans from February to December and, in total, would add more than 20 million terahashes per second (TH/s) of computing power at full deployment. 

Meanwhile, the 7-day moving average of the bitcoin network's hashing power stands at 157 million TH/s, the growth of which has been largely sluggish since mid-October in comparison to bitcoin's price, which has soared more than four-folded since that time.

It remains to be seen whether these Chinese-made bitcoin miners will eventually flow to U.S. facilities. If bitcoin's price goes up significantly by the time a shipment is ready, it would be in the buyers' interest to consider simply reselling the spot stocks to safely lock in profits.

Half a billion and rising

Although not every institution has disclosed the cost of their pre-orders, archived information from Bitmain can provide reference points for an estimation. 

Historical quotes on Bitmain's website, for instance, show the price for its S19 series on November 8 was at $20 to $23 per TH/s. Within a month, the cost quickly rose to between $26 to $31 per TH/s amid bitcoin's price surge.

Prices continued to increase in January and early February, with quotes between $29 to $34 per TH/s. This development was due to bitcoin's growing price and a mining chip shortage.

Even taking the lower end of the cost range, a conservative estimate would mean the ten North American institutions alone have spent at least $400 million since October on the newest generation of equipment.

In fact, Marathon Patent Group said in late December that it invested $170 million for 70,000 units of Bitmain's AntMiner S19 with a total computing power of 6.65 million TH/s. That translates to a cost of $25 per TH/s.

Based on the hashrate price index compiled by Luxor Technology, the value of each TH/s of S19 equipment currently stands above $60. That means the market value of new-generation machines on-order is estimated to be above $1 billion.

U.S. pool boost

Hand-in-hand with hardware investments is an institutional focus on expanding mining pool services in the North American region.

Apart from Luxor's pre-seed round, Coinbase Ventures recently invested in U.S. mining pool Titan, which launched its business in December with an initial hashrate boost from U.S. mining farm operators Core Scientific and Coinmint.

Marathon and DMG Blockchain Solutions also teamed up to launch a nonprofit trade group last month dubbed the Digital Currency Miners of North America, with the goal of focusing on transactions that comply with American regulations.

Foundry, the mining subsidiary of Digital Currency Group, quietly began operating a bitcoin mining pool last year and mined the first block on November 4. The pool wasn't labeled as Foundry USA Pool until Christmas, its previous payout address shows.

Foundry USA Pool, with a coinbase signal of #DropGold – echoing asset manager Grayscale's marketing efforts –  has gradually increased its hash power over the past few months.

On-chain data shows Foundry USA possesses an average 1.3% of the network's computing power over the past week. That state of affairs, combined with luck, helped the pool mine six blocks – totaling to more than 40 BTC in rewards – on Monday alone, which was its biggest daily output since inception.