In February 2023, Blockware Intelligence released the pilot version of “Ranking Public Bitcoin Miners” using financial data from mostly the 3rd quarter of 2022. That report caught fire, as it introduced an innovative new framework to quantify the financial health of public miners and calculated a “Miner Score.”
In February 2023, Blockware Intelligence released the pilot version of “Ranking Public Bitcoin Miners” using financial data from mostly the 3rd quarter of 2022. That report caught fire, as it introduced an innovative new framework to quantify the financial health of public miners and calculated a “Miner Score” to rank them based on the following criteria:
This version of “Ranking Public Bitcoin Miners” has been updated to use data from the Q4 10K’s largely released in March 2023. Note that for this version, DMG Blockchain (DMGGF) has been added. Also, Bit Digital (BTBT), Cathedra Bitcoin (CBTTF), Cipher Mining (CIFR), and Argo Blockchain (ARBK) were not included due to not having reported a 10K at the time of writing, or having implemented a change in reporting practices.
This analytical framework is limited by the timing of available data and is only intended to be used for education. The results of this study are solely based on subjective data and are not an advertisement to buy, sell or hold any particular security.
Publicly traded Bitcoin miners massively outperformed in Q1 2023. Analyzing this price action within the context of each company’s change in financial health (Miner Score) can provide valuable insights.
The table to the right lists these companies from highest to lowest Q4 miner score. Notably, 8 of the top 10 miner scores recorded 100%+ returns in Q1.
Core Scientific is the obvious outlier. Despite receiving the lowest miner score in both periods, it was the 2nd best performing stock last quarter. This is likely a function of basic market dynamics. CORZQ was aggressively oversold in Q3 and Q4, 2022 as a result of solvency concerns surrounding their Chapter 11 bankruptcy filing. Sentiment has shifted in CORZQ’s favor recently, as they’ve made material efforts to repay their creditor, driving liquidity back into the name.
The Cost of Revenue (CoR) is reported on the income statement of public companies. For firms who solely mine BTC, we either used the CoR given at face value if depreciation was already removed, or subtracted the depreciation expense provided in the filing. Companies who have other revenue sources generally describe their Cost of Revenue by revenue source in the footnotes.
By dividing the direct Cost of Mining Revenue by the quantity of BTC mined over a given period, we can approximate the breakeven (BE) price of the BTC mined. In theory, if BTC is above their BE price, then that firm is in profit on the BTC mined over the period. It should be noted, however, that numbers used in financial statements are backward-looking estimates. Furthermore, solely looking at the Cost of Mining Revenue does not take into account other operating costs such as depreciation, impairment, and administrative expenses.
The table on the right shows the breakeven Bitcoin price for Q4 using CoR. This data is sorted lowest to highest by BE price, and includes a red line to show companies with a BE below BTC’s 12/30/22 closing price of $16,600.10. The furthest right column shows how their breakeven price changed in Q4, compared to their last reporting period.
The Current Ratio divides total current assets by total current liabilities to measure the ability of a company to pay its short-term financial obligations. Current assets include things such as cash, accounts receivable, inventory, and short-term investments. Examples of current liabilities would be accounts payable, notes payable, and other short-term debt.
The traditional benchmark for the Current Ratio is 2.0 or greater. This implies that the company has double the amount of current assets than liabilities, and indicates a strong ability to cover short-term debts. But, companies with extremely high Current Ratios are likely not effectively allocating their assets, or don’t have profitable ventures to do so.
The table to the right shows the Current Ratio of public miners, sorted highest to lowest. It also shows how much their Current Ratio grew last quarter, and a red line showing the median Current Ratio.
The Debt-to-Equity (D-E) Ratio divides total liabilities by total shareholders equity to show the amount of debt compared to equity financing and retained earnings. Highly leveraged firms will have high D-E Ratios as the total value of liabilities vastly outweighs the value of their equity.
A D-E Ratio in the range of 0.5-1.5 is considered ideal among financial analysts as it shows a healthy reliance on debt supported by significant equity. Generally speaking, a low D-E Ratio indicates a low likelihood of default, but extremely low D-E Ratios could indicate an unhealthy reliance on equity financing.
For example, in January 2023 Greenidge Generation (GREE) announced a second debt restructuring. Their over reliance on debt financing was evident by a D-E ratio over 2x greater than the next highest in the group in Q4.
The table to the right shows the D-E Ratios of public miners, sorted lowest to highest. It also shows the change in their D-E Ratio over Q4, and includes a red line to show the median D-E Ratio.
The Cash Ratio is found by dividing the sum of cash and cash equivalents by current liabilities. This ratio measures the firm’s ability to repay short-term obligations solely using cash on-hand.
A Cash Ratio of 1.0 is the benchmark to signify strong liquidity. Extremely high Cash Ratios could indicate that the company has underallocated cash into investments, or that the company has no profitable projects to utilize their cash. A low Cash Ratio tells us that the firm is currently unable to cover short-term liabilities without selling assets or liquidating receivables.
CORZ, WULF, and MIGI all struggled to repay creditors in 2022 and early-2023, which resulted in bankruptcy or restructurings to avoid bankruptcy. These names had some of the lowest Cash Ratios in the group. CLSK, on the other hand, is a firm whose generally considered healthy, and their low Cash Ratios is evidence of undergoing new projects to expand hashrate in Q4.
The table to the right shows the cash ratios of public miners, sorted highest to lowest. It also shows their Q4 Cash Ratio growth and includes a red line to show the median Cash Ratio.
To aggregate this data, and rank the public miners included in this report, our team assigned each company a “Miner Score”. This score calculates the company’s average percentile ranking across the 4 categories: Breakeven Price using Cost of Revenue, Current Ratio, Debt-to-Equity Ratio, and Cash Ratio.
For example, BITF had the 3rd lowest breakeven BTC price, therefore BITF received a score of 13/15 (0.87 or 87) in this category. MIGI had the highest BE price, giving it a score of 0/15 in this category. A perfect Miner Score of 100 would mean that company held the #1 ranking across all 4 categories.
The table below breaks down the percentile rankings (category score) across each of the 4 categories. They were then averaged to calculate the “Total Miner Score” for each company. Cells with red text show instances when scores were adjusted to remove misleading results. Firms who had a Current Ratio >10.0, D-E Ratio 5.0 were adjusted downwards.
The chart on the right displays the Q4 Miner Score of each company overlaid with their stock price return in Q1 2023. As you can see, price action from this industry group was largely strong in the 1st quarter. This was in accordance with Bitcoin having one of the best quarters of any asset.
In the 1st quarter of 2023, we saw continued contagion in some names. GREE, SDIG, and WULF, all announced a new round, or continuation, of restructuring. CORZ also continued its sale of assets to repay creditors. These names were all in the bottom-half of miner scores in Q4. MIGI remained overall unhealthy, but performed a reverse stock split, which is why their share price was up ~125% last quarter.
Other names, such as CLSK, announced large plans to capitalize on low ASIC prices and increase hashrate. This may have hurt their miner score if significant current assets were expended. This is why it’s important to view miner scores in the context of the firm’s overall financial standing and general market conditions.
We elected to leave our valuation framework subjective, and not artificially boost scores to reflect expansion plans.
Using any single accounting ratio, solely looking at breakeven prices, or only viewing Miner Scores is generally not the most practical way to apply financial analysis in the real world. The fundamental analysis highlighted in this report uses backward-looking data, while equity price action is based on forward-looking mechanisms. Understanding the financial health of the firms is certainly important, but we must also utilize technical analysis within the greater macroeconomic context to understand how institutions are currently viewing risk.
This report proves that despite all operating with essentially the same objective, to mine Bitcoin at the lowest possible cost, not all public miners are created equal. Investing in public miners is just one of the many avenues to gain directional exposure to Bitcoin, but we prefer to mine Bitcoin for ourselves. Mining Bitcoin can allow you to earn cash flow while eliminating much of the counterparty, market, and credit risk associated with simply buying shares of public miners.
Market contagion from the forced selling of ASICs by large miners, and overall high fear levels, have led to Bitcoin price growth outpacing historically highly-correlated ASIC pricing. These discounts provide a great opportunity to start mining now.
Having sold over 350,000 ASICs since 2017, Blockware Solutions played a pivotal role in bringing Bitcoin mining to North America. Buying or hosting rigs with Blockware Solutions eliminates the difficulty of sourcing scalable energy, procuring ASICs, and building large facilities all by yourself.
If you’re an individual or institution interested in buying or hosting rigs with a trusted partner like Blockware Solutions, or would simply like to learn more, you can request a quote here or reach out to the team at [email protected].
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