B. Riley looking to purchase up to $100M in Bitcoin Mining Company Iris Energy

Upon the recent filing with the SEC, Bitcoin mining company Iris Energy released a signed deal with B. Riley, a US based financial services company. According to the agreement, B. Riley has the option to purchase up to 25 million shares of the Iris Energy stock within the next 24 months worth roughly $100,000,000. The SEC filing also stated that B Riley was to receive a total of 198,174 shares “in consideration for entering into the purchase agreement”.

Who is Iris Energy?

Iris Energy is an Australian based company founded in 2018 with a goal to mine Bitcoin sustainability using renewable energy sources. After multiple rounds of funding, Iris went public in late 2021 with an IPO of $28 per share. The company has since traded down over 85% likely due to a combination of Bitcoins value, energy price hikes, and the relative hash rate going to all time highs. So far this year, the mining company has brought in $59.04 M in annual revenue but still has a way to go until break even with net income at -$419M.

Beyond the resources it takes to house the data centers and source the energy, the business model is pretty straight forward: mine bitcoin and convert it to cash. There are clear advantages with using renewables besides following mainstream ESG narratives. Renewables offer some of the cheapest energy in the world. The main drawback here is of course intermittency. No sun, no solar. No wind, and the turbines don’t turn. However when they are running, Bitcoin mining can be an attractive use of the energy, assuming it’s being mined using a cost effective method.

Bitcoin Mining in North America

The past two years have been volatile for many industries and this is especially so for Bitcoin mining companies. Mining Bitcoin comes with a mixed bag of disadvantages and great advantages. Those who can source cheap energy are rewarded greatly, yet there are fundamental conditions which are simply out of the control of any company. For renewable mining companies, they are at the behest of the natural conditions which provide the energy as well as the hashrate. The Proof of Work model in Bitcoin adjusts the difficulty to find the right nonce every 2 weeks to account for fluctuations. Higher hashrate equals greater difficulty.

The recent hash rates have been at an all time high irrespective of Bitcoin’s market value, which has taken a near 80% dip from all time highs in late 2021. This could be due to the extremely competitive environment for mining. There are now over 26 publicly listed Bitcoin mining companies, each fighting over hashpower in the network. The hash rate recovered at a surprising rate after the China mining ban in mid 2021, which sent the hashrate down 50%. It recovered fully by the end of the year with miners migrating to more friendly zones in North America.

https://www.blockchain.com/charts/hash-rate

Conclusion

The mining space is booming and has spurred a lot of attention in the last two years. For Bitcoin investors, funding to companies like Iris coupled with the growing hashrate should be a good sign for the long term. As the hashrate rises, the Bitcoin network becomes more and more secure and more resilient to attacks. The disparity in the hashrate and Bitcoin price should speak to the low time preference of miners. They clearly have a long term vision and think it’s worthwhile to withstand the hard economic times we’re currently facing. It will be interesting to see how the industry grows following the recession.