Public Bitcoin miners are increasingly adopting Bitcoin treasury strategies, with MARA Holdings (MARA) leading the pack. As of August 31, 2024, MARA held the largest Bitcoin treasury among its peers, totaling 25,945 BTC. This positions the company as one of the top vehicles for investors seeking Bitcoin exposure through traditional equity markets.
MARA’s Historical Bitcoin Accumulation
What sets MARA apart is its dual approach: not only does it HODL the Bitcoin it mines, but it also actively purchases Bitcoin from the market using funds raised from financial markets. In August 2024, MARA completed a $300 million convertible senior notes offering and acquired 4,144 BTC for $245 million. This was not the first time the company used capital markets to buy Bitcoin. In January 2021, then-called Marathon Patent Group, it raised $200 million via an at-the-market (ATM) offering, allocating $150 million to purchase 4,812.66 BTC at an average price of $31,168 per BTC. Prior to this, in December 2020, the company held only 126 BTC.
MicroStrategy and the Bitcoin Treasury Playbook
No discussion of Bitcoin treasury strategies is complete without mentioning Michael J. Saylor and his company MicroStrategy. As of August 10, 2024, MicroStrategy’s stock had delivered cumulative returns of 1,206%, outpacing even Nvidia’s 948%. This raises the question: Why have companies like MARA and MicroStrategy found success, and what are the associated risks?
Key Factors Behind the Strategy
Bitcoin’s Historical Outperformance: Bitcoin has demonstrated an impressive compounded annual growth rate (CAGR) over any four-year period, making it one of the best-performing assets. For miners, holding Bitcoin acts as a hedge against rising operational costs, especially after the April 2024 halving which nearly doubled the cost of mining a single BTC.
Bitcoin as a Superior Store of Value: With a finite supply of 21 million coins and a decentralized nature, Bitcoin functions as a reliable store of value during inflation and market uncertainty. As governments print fiat currency, companies increasingly view Bitcoin as a safeguard against depreciation.
Bitcoin as an Investment Benchmark: Traditional methods of returning capital to shareholders—dividends (subject to double taxation) and share buybacks (often inefficient)—may fail to match Bitcoin’s potential. Thus, Bitcoin becomes an attractive alternative to maximize shareholder value.
Maximizing BTC Per Share: The ultimate goal is to increase the amount of Bitcoin per share. As Bitcoin appreciates, the book value per share rises, driving up shareholder value. This explains why MicroStrategy often trades at a premium to its net asset value (NAV) in Bitcoin.
How Miners Adopt Treasury Strategies
Miners have several options: hold a portion (or all) of their daily mined Bitcoin, or use excess cash to buy BTC from the market. Public miners like MARA can go further by raising capital through equity or debt specifically to acquire Bitcoin. As long as Bitcoin’s expected return exceeds the cost of capital (interest or dilution), the strategy makes sense. MARA’s recent $300 million convertible notes carry an interest rate of just 2.125%, extremely low given Bitcoin’s volatility.
Risks to Consider
However, this approach carries significant risks. Bitcoin’s price may take longer to reach target levels, and the competitive nature of Bitcoin mining can squeeze profit margins. Many miners invest heavily in expanding capacity or upgrading fleets, incurring ongoing costs. If companies like MARA fail to generate alternative revenue streams beyond mining and hosting, their cash positions could become unsustainable, especially as the hash price hits historic lows. If market conditions force miners to sell their Bitcoin holdings during a bear market, it could negatively impact enterprise value and stock prices. Essentially, the strategy creates levered exposure to Bitcoin, amplifying returns in bull markets but increasing risks during downturns. Only miners with robust risk management strategies can ride the wave and achieve long-term success.