Recovering Prices Granted Miners Relief in Q1 – Foundry, Marathon, Hut 8, TeraWulf and Sphere Finance & Legal Updates

Bitcoin miners logged a significant bump in total revenue accrued across March, earning almost $732 million from block subsidies. In addition to the inflation rewards, transaction fees during this period brought the cumulative figure to $755 million.

Niche overview – Mining difficulty and network hashrate

The revenue increase corresponded with positive price action in the market as Bitcoin (BTC) gained 72% across the three-month period. Still, the profitability of mining operations remains significantly suppressed as BTC price lulled more than 60% below its Nov 2021 record high, for the better part of the quarter.

Meanwhile, in the latest adjustment at block height 784,224, mining difficulty rose for a fourth consecutive time to yet a new high of 47.9 T as per data from Blockchain.com. The latest 2.23% increase spotted on April 6 follows three accounts of upwards adjustment – 9.95%, 1.16%, and 7.56%, respectively, implying a healthy response to the network’s gradually growing hashrate. The average hash rate, on the other hand, has been observed at a record high of around 340 EH/s.

On the environmental concerns front, recently published reports have shown that a significant fraction of Bitcoin’s energy use is from renewable sources. In an update to a report published in February, Environmental, Social, and Governance (ESG) analyst and investor Daniel Batten noted that more than 50% of Bitcoin’s energy usage comes from renewable energy, with just about half (23.12%) of this contributed to by water sources as of the end of March.  Wind contributed 13.98% to the Bitcoin energy sources, while nuclear’s proportion stood at 7.94%. Solar’s figure came at 4.98%, while other renewables added up to fill a total of 52.4%.

Gas and coal contributed 21.14% and 22.92%, respectively, to Bitcoin mining power use over this period. Batten opined that an annual growth rate of 6.2% in the use of environmentally-friendly power for Bitcoin mining since 2020 will likely continue. This could in turn catalyze a deceleration in the utilization of non-renewable energy, such as fossil fuels.

Business Headlines

Mining investment options, including exchange-traded funds (ETF) and stocks, have fared decently so far this year after a heavy battering in 2022. Hut 8 stock has tracked a modest upwards course similar to most of its market peers.

The HUT stock tracked roughly 98% in quarterly returns for Q1 while Bitfarms (BITF), Hive (HIVE) Marathon (MARA), and Riot (RIOT) charted 120%, 128%, 154% and 194% respectively.

Hut 8 sees a 30% decrease in Bitcoin produced across Q1

Hut 8 shared its production and operations for March on Wednesday, reporting it mined 131 Bitcoin in March. This figure brought the quarter’s production figure to 475 – the firm said in its first update for 2023 that it mined 188 BTC in January. Hut 8, which also operates headquarters in Canada, reported in the Apr 5 report that it sold 240 Bitcoin, coming from its February batch and partly from March. Still, the miner is one of the biggest holders of the asset among peers in its niche. Its self-mined reserve of 9,133 BTC claims the top spot among publicly traded companies with Bitcoin in the treasuries.

Earlier in February, Hut 8 and US Bitcoin announced a ‘merger of equals’ arrangement to realize a ‘preeminent digital asset mining, hosting, managed infrastructure operations, and high performance computing organization,’ according to a joint statement.

“We think bringing these two entities together is just going to provide an incredible amount of scale [and] diversified revenue programs, which is very on strategy for both of us independently,” CEO Jaime Leverton, who assumed the acting executive role of the new entity, said in an interview at the time.

In the latest operational update, the mining company said it had commenced remediation plans on its site in Alberta. Hut 8 mining facilities in Medicine Hat also reached an all-time operating high of 1.72 EH/s. The growth was attributable to augmented energization following the transfer of around 1,000 miners from its North Bay site.

“While we met key operational milestones in Medicine Hat in March, we continue to be laser-focused on two things. The […] team is committed to both remediating the challenges at our Drumheller site, and closing the transaction with USBTC, which remains on track.” Leverton said.

US Bitcoin reaches an agreement to resume operation in the Niagara Falls facility

Separately, US Bitcoin communicated this week that it has agreed to a tentative arrangement with the city to allow it to continue mining in Niagara Falls. The latter facility’s operations were halted earlier in compliance with a ruling from a state Supreme Court judge. In addition to fines and legal fees, the agreement stipulated that the mining company reopen the facility under noise ordinances and other regulations.

Foundry to start charging fees for services later this month

On Tuesday, DCG’s Bitcoin mining unit Foundry notified clients that its mining pool, the largest by hash rate share, has stopped offering its services for free. Foundry, which has been offering its mining pool services at no fees since 2019, will adopt a tiered model to impose mining pool fees.

Foundry USA accounts for the biggest share of Bitcoin’s daily real-time hash rate, followed by Antpool. The new scheme, cited in a notice featured by Bloomberg, will be based on the previous quarter’s average hashrate and take effect between Apr 19 and Apr 22.

Sphere 3D files lawsuit founded on attack allegations against Gryphon

Canadian Bitcoin miner Sphere 3D is suing its partner Gryphon Digital Mining, alleging failure to act in the best interest after erroneous Bitcoin transactions, according to Apr 7 court documents.  The Mississauga-based net carbon-neutral miner outlined in the litigation filed with the Southern District of New York that Gryphon lost $500,000 worth of Bitcoin belonging to it in a spoofing attack.  Per the filing details, Gryphon CEO Rob Chang sent 18 BTCs to an address set up by a fraudster impersonating the CFO of Sphere 3D in January. The offended party said a second transaction involving 8 BTCs was made to the same address days later.

Remarking on the action, CEO Patricia Trompeter said the complaint goes a long way in promoting corporate integrity within the industry. The two companies put in place the current arrangement, which bestows ‘fiduciary duties’ of Sphere’s digital assets mining operation upon Gryphon, in August 2021. The business relationship rewards the latter 22.5% of Sphere’s gross profit for its management and maintenance services. Sphere 3D seeks to be reimbursed not less than $75,000 “exclusive of interest and costs” as a result of poor services provided.

“Today [Sphere 3D] filed litigation against Gryphon, the custodial management services provider of our blockchain and cryptocurrency-related services, for materially breaching the Master Services Agreement […] Gryphon has put the Company’s assets at significant risk and willfully violated their contractual duties,” Trompeter said in a statement.

Though Gryphon hasn’t provided an official response, CEO Chang acknowledged the complaint, adding that the company intends to mount a vigorous defense.

In April 2022, Gryphon and Sphere 3D announced they had mutually decided “not to proceed” with earlier merger plans citing “changing market conditions, the passage of time, and the relative financial positions of the companies.” The joint statement communicating the merger’s cancelation said neither party left the table in bad faith.  Following the collapse of the plans conceived in Jun 2021, both conveyed intentions to independently pursue carbon-neutral Bitcoin mining operations. Markedly, the arrangement and consequent restructure would have seen Gryphon, the resulting singular entity, become a publicly-traded company as Sphere 3D is listed on NASDAQ.

TeraWulf reports a 63% monthly increase in BTC production in March

TeraWulf also shared its production and operational update for March this week, reporting a 50% increase in the operating hash rate for the month. The addition increased the company’s hashrate to 3.3 EH/s from $2.8 EH/s. TeraWulf’s entire network consists of 18,000 (13,000 self-miners and 5,000 hosted) operational miners in its New York facility. Its second Bitcoin mining facility has 9,200 miners based out of Nautilus and is powered by 100% nuclear power. The facility contributes over 1.2 EH/s of the self-mining capacity.

The miner reported that it self-mined 233 BTC translating to an average production rate of roughly 7.5 coins per day. The unaudited report highlighted that the total expenses attributable to power summed up to $2.3 million, consistent with respect to a target of $0.035/kWh across its two sites. TeraWulf said its active fleet as of the end of Q1 comprised 27,200 miners. Its boasts a 91% zero-carbon energy claim on powering its vertically integrated mining facilities.

“We continue to execute as promised, delivering strong results in Q1 2023. We believe the continued hard work and commitment of our people has positioned us to achieve our goal of 5.5 EH/s of capacity in the second quarter,” Chief Strategy Officer Kerri Langlais said.

The Apr 6 report included an update on the construction of Building 2 at Lake Mariner. TeraWulf plans to secure an additional 50 MW of self-mining capacity for the Pennsylvania-based facility in the coming weeks to realize its 160 MW operating capacity target for Q2.

Bitfarms generated 1,297 Bitcoin in Q1, sold 394 BTC in March

Bitfarms, another mining company based in Canada, also reported in an update released on Monday that its BTC production increased 35% to 1,297 Bitcoin in Q1 compared to the same period in 2022 – attributable to positive price performance.  Bitfarms also reduced its debt obligations and strengthened its balance sheet.  Despite energy curtailment in its Quebec and Paraguay facilities, the mining company achieved a 17% year-over-year increase in Bitcoin production in March, mining 424 tokens at an average of 13.7 Bitcoin a day. Equivalent dollar figures amounted to about $390,000 per day and $12.1 million for the month.

The Canadian miner sold 394 Bitcoin at an average price of $24,700 per Bitcoin for a total of $9.7 million in March. CEO Geoff Morphy noted that the company performed well due to stable production and an increasing Bitcoin price. Chief mining officer Ben Gagnon said that Bitcoin prices surged by 72% during the first quarter of 2023, surpassing the growth in difficulty (32.5%). Consequently, industry mining revenue increased by 31% in dollars per TH in the same quarter.

Gagnon added that to optimize costs further, Bitfarms will this month deploy a management system to track the real-time energy consumption of machines following a successful pilot of the proprietary management system in March. Per the financial update, Bitfarms held 435 Bitcoin in custody at the end of the quarter, approximately $12.4 million, $29 million in cash equivalents, and a further $22 million credit line for pre-paid deposits for future miner purchase agreements.

Marathon Digital’s Q1 2023 growth hit record levels as it mined 2,195 Bitcoin

Marathon Digital separately reported a record production of 2,195 Bitcoin mined in the first quarter of 2023, worth around $62 million as of the announcement on Monday. The quarterly results meant Marathon enjoyed a 74% bump from the same period last year and a 41% increase from Q4 2022. The surge in Marathon’s Bitcoin production is a consequence of the operational hash rate growing by almost 200% since Q1 2022.

Remarkable progress so far

More recently, between Jan 1 and Mar 31, the hash rate had increased by 64% to 11.5 EH/s. Marathon had set two primary initiatives for this year – to energize previously purchased mining rigs to reach 23 EH/s by the end of Q2 and optimize its rigs’ performance. CEO and Chairman Fred Thiel said the company made reasonable progress on both initiatives, detailing a 64% increase in the operational hash rate, rising from 7 EH/s to 11.5 EH/s, and continuous improvement in hash rate consistency, which indicates the success of its technological upgrades. These hash rate growths resulted from bringing online 25,900 Bitcoin miners in various North Dakota facilities, pushing the fleet numbers to 105,200 mining rigs as of Apr 1.

Marathon’s production last month reached 825 Bitcoin, a significant 21% increase from the previous month, representing 40% of the entire quarter’s load. As of Mar 31, there were 11,466 Bitcoin in its coffers, equivalent to $326.5 million and just over $321 million at the time of writing. Marathon reduced its debt by $50 million in the last quarter and increased its unrestricted Bitcoin holdings by 3,132 Bitcoin after prepaying its term loan and terminating its credit facilities with the now-defunct Silvergate Bank. Marathon is looking to acquire a new batch of Antminer S19 XP Bitcoin mining rigs, which boast a nearly 30% improvement in efficiency over the prior Antminer S19 Pro models. Once they’re up and running, the S19 XPs are projected to comprise approximately 66% of the overall hash rate. The design of these machines has been previously termed flawed by fellow Bitcoin mining firm Compass Mining, which claimed they might suffer overheating or shut down entirely. Also, Marathon said it maintains its projection of around 23 EH/s of capacity set up by mid-2023.