Bitcoin Miners Slash Hashcost Ahead of Halving: IREN, CLSK, HIVE

Three publicly traded bitcoin mining companies have released their earnings reports for the fourth quarter and full year of 2023 as of writing: CleanSpark (CLSK), Iris Energy (IREN), and HIVE. 

The filings shed light on the statistics of their respective bitcoin mining operations and how prepared they are as the bitcoin network inches closer to the next halving event, which is slated to take place in April. This post takes a quick look at several key metrics evaluating their competitiveness.

Bitcoin mining and HPC

As of Feb. 20, the stocks of HIVE, IREN, and CLSK were trading at a market capitalization of $393 million, $714 million, and $3.28 billion, respectively. The chart from Tradingview below shows that CLSK has largely outperformed IREN and HIVE since the beginning of 2023. 

The price appreciation, despite substantial equity dilution over the past year, has been bolstered by the growth of bitcoin production revenue every quarter. The chart below outlines the quarterly bitcoin mining revenues generated by CLSK, HIVE, and IREN.

Based on the latest cash and debts disclosed as of Dec. 31, we estimate the price-to-hash (P/H) ratio of CLSK, HIVE and IREN to be $152.11, $60.12, and $35.93, respectively, per each TH/s of their realized hashrate as of January 31. 

The P/H ratio is similar to the idea of price-to-earnings ratio. In essence, it evaluates how much a stock investor would be paying a company to plug in one terahash per second of computing power to mine bitcoin. The lower such a price is, the more undervalued the company would be. 

Below is a monthly change of the P/H ratio of a variety of public mining companies based on their bitcoin production and enterprise value, which factors in both their market cap and debt levels. Except for IREN, HIVE, and CLSK, the debt levels of all other companies were as of Sept. 30.

One theme after the proof-of-stake switch of Ethereum in 2021 and the bearish market environment in 2022 has been the diversification into other revenue streams such as high-performance computing, which has also extended to generative AI amid the OpenAI hype.

While CleanSpark remains fully committed to bitcoin mining, others like HIVE, IREN, HUT and BTBT have made announcements to double down on their HPC revenue streams over the past year. For HIVE and IREN, it appears that the last quarter of 2023 did generate some modest revenue from this diversification strategy. 

HIVE reported a revenue of $1.137 million for the HPC stream with a cost of sales of $1.189 million, which means the segment was just about making even. IREN, on the other hand, made a negligible revenue of $527,000 from the AI computing segment. It is yet to be seen how significant of a role these streams will play in a post-bitcoin-halving world.

Hashcost slashed

Apart from the price-to-hash ratio, it is important to evaluate the fleet hashcost of bitcoin mining companies and the all-in cost of mining by hashrate. The fleet hashcost metric shows whether a public mining company is capable of making a gross profit, to begin with when compared to bitcoin’s hashprice.

Bitcoin’s hashprice measures the dollar value of daily mining revenue per PH/s of computing power. A company’s hashcost, on the other hand, refers to the dollar value of the daily gross cost of operating each PH/s of computing power. 

During the last quarter of 2023, HIVE, CLSK and IREN all managed to slash their fleet hashcost as shown in the chart below mainly due to the efforts they made to upgrade their fleet with the latest generation of equipment. 

On a quarter-over-quarter basis, CLSK reduced its hashcost by 17.2%, IREN by 12.7% and HIVE by 5.1%. Yet still, HIVE’s fleet hashcost remained above $50/PH/s, which appears to be on a riskier end given that bitcoin’s hashprice is yet to break the $100/PH/s level. After the halving in April, bitcoin’s hashprice will immediately reduce by 50%, casting greater uncertainties for companies with a higher hashcost.

When factoring in other corporate overhead, the all-in cost of mining indicates if a company can report positive EBITDA when compared to bitcoin’s hashprice during a quarter.

As the chart below further shows, IREN and HIVE had an all-in cost of mining of more than $60/PH/s while CLSK managed to keep it under $50/PH/s. It is obvious that reducing corporate overhead is as paramount as improving fleet efficiency and lowering energy rates in a post-halving world.

Dilution, dilution, dilution 

Part of the reason why public mining companies have been able to reduce the hashcosts is due to fleet upgrade using the latest generation of miners from Bitmain and MicroBT.

The graph below charts the quarterly net spending on property, plant, and equipment by HIVE, IREN, and CLSK over the past two years. Their total net spending continued to rise during the second half of 2023 amid the launch of Bitmain’s Antminer S21 series and MicroBT’s WhatsMiner 60 series. It was, however, nowhere close to the massive spending in early 2022 driven by the 2021 bull run.

In addition, the chief executive officers of both IREN and CLSK said during their respective Q4 earnings calls that there is a high probability that their companies will exercise the option to buy additional Antminer S21s from Bitmain throughout 2024.

That would mean an additional capital investment of as much as $128 million for IREN and as much as $320 million for CLSK. As of Dec. 31, IREN had $90 million in cash and equivalent while CLSK had $48.5 million in cash and $127 million worth of bitcoin holdings.

Such a demand for capital expenditure perhaps explains why public mining companies are taking advantage of the stock rally since mid-last year to attract external equity investments.

HIVE, CLSK, and IREN combined raised $350 million via equity financing in the second half of 2023, which made up 60% of the total $586 million they raised last year. 

More notably, since the New Year, IREN raised $93 million as of Feb. 15 and CLSK raised $122 million as of Feb. 8. When combined, that already represented 63% of what they raised in the second half of 2023.

Such a pace of equity dilution and the stock price appreciation has fueled the exponential growth of the market capitalization of IREN and CLSK. CLSK has recently been in a neck-and-neck race with RIOT for the position of the second-largest bitcoin mining stock by market capitalization.