In the thick of crypto winter, asset manager Grayscale Investments says it’s the right time to get into the bitcoin mining business and is asking investors to jump in with the firm.
The crypto company is spinning up an LLC with its sister firm Foundry (both under Digital Currency Group) that will use accredited investor funds to buy new and distressed crypto mining equipment as well as to finance existing mining businesses.
Any equipment the new enterprise obtains will be set to mine bitcoin as part of Foundry’s USA pool, the world’s largest. In return, earned Bitcoin would be distributed to investors as a cash dividend, Grayscale CEO Michael Sonnenshein exclusively told Yahoo Finance.
“We believe that we’re at an inflection point in the bitcoin mining cycle and we want this [operating company] to have the flexibility to deploy its capital opportunistically,” Sonnenshein said, noting the enterprise would be dubbed GDIO for Grayscale Digital Infrastructure Opportunities LLC.
The offering is meant for high net worth individuals, family offices, and hedge funds as well as pension and endowment funds whose mandates don’t allow them to invest directly in crypto, Sonnenshein said.
To validate and secure transactions, Bitcoin uses a protocol layer known as proof of work. The mechanism allows specialized computers or ASICs to compete with contributions of power in return for a portion of bitcoin.
To increase that likelihood, mining operators can also pool their resources together as GDIO is aiming to do with investor funds.
Bitcoin mining demands large amounts of upfront capital expenditure and big power bills to maintain operations. As a result, the segment has been hit especially hard with the rising costs to borrow money and use Texas electricity on top of a 57% year to date swoon in bitcoin (BTC-USD).
For instance, Compute North, one of the largest data center providers for crypto mining, filed for chapter 11 bankruptcy two weeks ago. In a court document, the company revealed it owed $128 million in long-term debt, which includes $7.4 million equipment and financing loan to Foundry, a crypto infrastructure firm.
Yet bitcoin and other crypto supporters say this year’s plunge has opened new opportunities following last year’s more crowded scene when crypto peaked, Sidney Powell, founder and CEO of crypto lender Maple, told Yahoo Finance. Maple recently introduced a $300 million secured debt financing pool for public and private bitcoin mining companies in need of more capital.
“As bitcoin prices have gone down that’s obviously made mining a less attractive, less rewarding activity,” Sonnenshein said. “For those miners who took on additional debt or too much leverage, they’re going to have to slim down operations and perhaps work on restructuring.”
“I think that is an opportunity for investors to capitalize on some of that distress,” he added.
Distressed crypto investing is not exclusive to mining, either. After an auction among several industry players, FTX purchased the customer deposit accounts of crypto lender Voyager Digital for approximately $50 million.
Another bidding party, crypto investment manager Wave Financial, told Yahoo Finance it plans to compete against FTX once more for Celsius’ assets.
When asked of potential distressed targets, Sonnenshein said: “It would be premature to speak to any specific opportunity at this juncture, but we are certainly seeing opportunities across the mining space.”