Consolidation in the bitcoin mining space is still in its early days, according to industry executives.
The industry will likely hit a "pain point" high in the fourth quarter — with more transactions happening — if it continues in the same trajectory, Argo Blockchain CEO Peter Wall argued Tuesday during a panel at the Digital Asset Summit.
The comments came days after bitcoin miner CleanSpark announced its second acquisition of a mining facility in the space of a month.
"That's kind of the first we're really seeing in this space. I would argue it's definitely very, very early days," said Jaime Leverton, CEO of Hut 8. "We've seen miners sell bitcoin (...), sell machines as well sell infrastructure, in order to cover some of their capital obligations. When when you run out of things to sell, that's when you actually start to see some real opportunities for M&A and consolidation."
While "market stress is starting to bubble up," BTIG analyst Gregory Lew said it "may be too early for the M&A cycle to start," in a report published this week.
"Selling non-core infrastructure locations (like we saw last week) to increase liquidity makes sense in the near-term," he added.
CleanSpark managed to leverage current market conditions, scoring over 16,000 mining machines at a discount since June and closing deals to acquire two sites in Georgia from Waha Technologies and the Nasdaq-listed Mawson Infrastructure Group.
Argo's Wall anticipates more of these types of asset transactions in the future rather than M&A deals. He has also seen that in past market cycles, for example with Riot's acquisition of Whinstone, a Texas facility previously owned by Northern Data.
"All of us have baggage, all of us have management teams, some of us have debt," he said. "How you put those together is more complicated (...) so if you're able to acquire either infrastructure or rig and leave out all the rest of the baggage, then it'd be a fortress."
CleanSpark deal unpacked
CleanSpark's acquisition "improves operating leverage" and drives hash rate growth "beyond Street expectations," according to a recent analyst note from Chardan Research.
"CLSK will likely remain opportunistic, potentially pursuing similar bolt-on acquisitions," the Chardan analysts wrote.
Comments from CleanSpark's leadership suggest continued attention on this front.
"The market has been preparing all summer for consolidation, and we are pleased to be on the acquiring side," CleanSpark CEO Zach Bradford said last month. "Our focus on sustainability and maximizing value for our stakeholders have put us in a unique position to take advantage of the unprecedented opportunities that the current market has created."
Mawson's chief commercial officer Nick Hughes-Jones told The Block that the deal was a "win-win for both parties," with CEO James Manning adding that the company will now focus its energy on its other facilities in the US.
As far as who will come out ahead as market troubles subside, Leverton said during the Tuesday event that much depends on how companies prepared themselves for a market downturn.
"Those people in the space that have that have very healthy balance sheets, I think are in the best position to ultimately use this market as an opportunity to build and come out of it stronger," he said.
Many bitcoin miners posted significant net losses in their second quarters, including CleanSpark, which reported $29.3 million in net losses in its most productive quarter to date, in terms of bitcoin mined (964 BTC, a 7% increase over the previous quarter).
Declining bitcoin prices (around 50% down in the past six months) and rising power prices have thinned bitcoin miners' margins in recent months. Monthly mining revenues have also gone down consistently since October of last year — $1.72 billion versus $656.97 million last month, according to data from The Block's Data Dashboard.