Blockstream will look to raise more capital to purchase bitcoin (btc) mining hardware through a second series of its Blockstream ASIC (BASIC) Note offering, which aims to accumulate and sell ASICs based on expected miner demand over the next two years.
Speaking exclusively to Cointelegraph, Blockstream CEO Adam Back highlighted the surplus of bitcoin mining hardware on the secondary market as a critical driver for a second series of its investment offering.
Series 1 is sold out
Blockstream closed an initial $5 million raise, in which the company purchased boxed and unused Antminer S19k Pro ASIC miners for $4.87 million. The company managed to secure the hardware, one of the Chinese manufacturer's most popular miners, through SunnySide Digital.
“It presents an opportunity because the price of bitcoin has risen 2.8 times and the price of miners has fallen. As a point of reference, ASICs were selling at $35 per terahash at the beginning of the year and now with this purchase at $13.5 per t/h,” explains Back.
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The CEO adds that ASIC prices have dropped 2.6 times their cost in dollars since January 2023 and 6.6 times in bitcoin. The latter is what matters to Back, who says Blockstream will store the hardware in warehouses and sell it on the market as miners look to bring more hardware online as profitability increases alongside bitcoin's projected bullish value:
“The fund does not seek the highest dollar price for the miner. “It is looking for the highest bitcoin price for the miner.”
“Accidental beneficiaries” of the BASIC Note strategy
The timing of the sale of miners is another consideration, which will need to take several metrics into account. A possible turning point could be the reduction of miners available on second-hand markets. Back says this will force buyers to go directly to manufacturers, driving up the price per terahash of units.
Blockstream experienced this firsthand in 2021 when it acquired miners for its hosting service. However, the company ran out of capacity to run the hardware for customers and eventually sold some surplus miners for “3-4 times” more than what it had purchased.
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“That wasn't our plan to get into the miner resale game, but we had more inventory than housing, so we sold the surplus. That opened our eyes to this dynamic between ASIC and bitcoin prices,” explains Back.
The bullish effect of bitcoin
Becoming “accidental beneficiaries” of the strategy behind the BASIC Note also highlights the importance of the “time value” of money and why the price of bitcoin remains crucial when selling bitcoin mining hardware for profit.
The BASIC Note is a bitcoin?src=hash&ref_src=twsrc%5Etfw”>#bitcoin-Named vehicle leveraging Blockstream's expertise in the bitcoin mining sector to capitalize on historically low ASIC prices and promising signs of recovery, anchored by the upcoming bitcoin halving in 2024.https://t.co/mx9QJ9STun
—Blockstream (@Blockstream) December 13, 2023
Back explains that miners typically purchase hardware for a dollar amount and calculate how much bitcoin they can mine from that point. However, you have to take into account the manufacturer's shipping times, which means that the investment only begins to generate value once it arrives and is turned on.
“We told people that, for example, you can pay the manufacturer $60 per terahash. But you will lose $50 waiting for it to arrive. Or you can pay us $100 per terahash. That’s a win for you because we can give it to you right away,” Back said.
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The CEO of Blockstream says that previous bitcoin bull runs have resulted in situations where the electricity cost of mining drops dramatically in percentage due to the increase in the value of btc.
“The profit is like three times greater when the price doubles. In that situation, people go from being willing to pay between $30 and $40 per terahash to being willing to pay between $100 and $130 per terahash, which is what happened last year,” Back recalls.
This presents the final opportunity to sell the bitcoin mining hardware that Blockstream has acquired.
BASIC Note will be reactive in the future
Blockstream's BASIC Note series 2 offering will likely react to market conditions and investor demand. Back notes that measuring how much hardware is available to buy in secondary markets is not so clear, even though low prices suggest excess inventory.
Luxembourg-based securities token platform STOKR will manage the second series, which will go live at the beginning of the new year. The product is available to non-US accredited investors and requires a minimum investment of $115,000 paid in bitcoin (btc), Liquid bitcoin (L-btc), or Tether (USDT).
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