Capitalizing on Market Opportunities: MARA's Strategic Bitcoin Acquisition Through Long-term Convertible Debt

Our recently completed private offering of $300 million in long-term convertible senior notes, with net proceeds earmarked primarily to purchase bitcoin, is a move that is not just a reflection of our confidence in bitcoin as a treasury reserve asset, but also a strategy that aligns with MARA’s long-term goals.  

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MARA’s Strategic Initiative

Our decision to issue convertible notes and to use the proceeds to purchase bitcoin is driven by our commitment to maintaining a robust financial position while capitalizing on market opportunities. Last year's debt reduction strengthened our balance sheet, enabling the acquisition of three key Bitcoin mining sites in Texas and Nebraska that secured 690 operational megawatts (MWs) ahead of the halving. These acquisitions, at the time, increased MARA’s directly owned and operated Bitcoin mining portfolio from 3% to 45%, and reduced our cost of revenue at these sites by approximately 20%. Our new initiative with the convertible notes issuance positions us to take advantage of favorable market conditions and enhance our operational capabilities, aligning with our long-term financial goals and reinforcing our belief in bitcoin’s potential as a highly accretive asset.  

Strategic Bitcoin Acquisition: Balancing Mining and Market Opportunities

As one of the world’s largest Bitcoin miners, we remain committed to our core operations. However, we recognize opportunities to purchase bitcoin strategically. Our approach involves carefully evaluating bitcoin’s price relative to mining costs. Outside the context of an acquisition, investing in mining infrastructure typically has a 12 to 18-month timeline to generate revenue. However, given the current mining hash price, the internal rate of return (IRR) indicates that purchasing bitcoin using funds from debt or equity issuances is more beneficial to shareholders until conditions improve.  

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While we continue to invest in our mining operations and grow our business, we will also capitalize on opportunities to purchase bitcoin, particularly during market downturns. Our strategy is to strike a balance between mining bitcoin and buying bitcoin, factoring in market conditions. During periods of significant price appreciation, we may focus solely on mining. However, with bitcoin trending sideways and costs increasing, which has been the case recently, we expect to opportunistically “buy the dips.”

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Our strategic purchases of bitcoin are not new. In 2021, MARA invested $150 million in bitcoin, which remains on our balance sheet today. More recently, we purchased $100 million in the open market when the price of bitcoin declined. This approach has helped us solidify MARA as the second largest publicly traded company with bitcoin on its balance sheet, according to the latest filings from BitcoinTreasuries.com. As of July 31, 2024, MARA held 20,818 bitcoin on its balance sheet, second only to MicroStrategy. Between August 12 and August 14, 2024, MARA used proceeds from the convertible notes offering to purchase 4,144 BTC (c. $249 million). This purchase, combined with our month-to-date BTC mined, increased MARA’s total bitcoin held on the balance sheet to over 25,000 BTC.  

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With bitcoin prices at an inflection point and anticipated market tailwinds, we see this as an opportune moment to increase our holdings, employing convertible senior notes as a lower-cost capital source that is not immediately dilutive.  

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Institutional, Political, & Market Dynamics

The market for Bitcoin has shown remarkable resilience, particularly in absorbing significant supply influxes. Recent events have demonstrated the market's ability to handle large distributions without lasting negative impacts on bitcoin's price to date. For instance, the Mt. Gox distribution saw $9 billion worth of bitcoin released. While not all of this hit the open market, the supply that was available was quickly absorbed, allowing bitcoin to stabilize in the low $60,000 range. Similarly, the German government's sale of over $3 billion in bitcoin was swiftly absorbed, causing only a brief price dip before returning to the $60,000 range. The U.S. Marshals Service's sales of Silk Road bitcoin and Genesis Global's $4 billion bankruptcy distribution over one weekend further illustrate the market's capacity to absorb significant supply without sustained price suppression.

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Regardless of these distributions, there is an undeniable institutional appetite for bitcoin. Notably, Cantor Fitzgerald has launched a $2 billion Bitcoin lending business, signaling a robust demand for bitcoin-related financial products. Similarly, Morgan Stanley has empowered 15,000 wealth advisors to market Bitcoin ETFs from BlackRock and Fidelity in response to clients’ interest in allocating a portion of their portfolios to bitcoin. We expect to see other wirehouses follow suit.  

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Looking ahead, we don’t anticipate major supply shocks in the near term. Market participants continue to absorb any available bitcoin supply, maintaining upward momentum during high-volume trading hours, indicating strong demand. Miners have largely adopted a HODL strategy, limiting the supply of newly mined coins entering the market. Additionally, long-term holders have increased their bitcoin holdings by 404,000 bitcoin, equivalent to over $23 billion, including 40,000 bitcoin accumulated through spot Bitcoin ETFs. The bitcoin supply on centralized exchanges is at a multi-year low, with large players withdrawing their assets at the highest rate since 2015, suggesting a trend towards self-custody and limited intention to sell.

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The political landscape also reflects a favorable stance on Bitcoin, with initiatives such as Senator Lummis's bill to establish a bitcoin strategic reserve and discussions within major political parties to integrate support for Bitcoin into their platforms. With support building across the political spectrum, policymakers are beginning to realize Bitcoin is for everyone. Bitcoin’s role in national security discussions has worked its way into the political sphere’s Overton window. Nation-state adoption and regulations have begun trending towards bitcoin becoming a global store of value as well. These developments suggest a supportive regulatory and political environment that could bolster bitcoin's role as a strategic asset.

Securing Block Space & Bitcoin

As Bitcoin’s importance grows, owning block space – the capacity to process transactions – becomes a matter of national security, particularly as sovereigns begin to ramp up their efforts to gain influence in the Bitcoin ecosystem. While economically infeasible for any single entity to dominate the Bitcoin network, owning a substantial portion of the global Bitcoin hash rate provides strategic advantages, such as ensuring timely transaction processing. At MARA, we strive to maintain or increase our share of block space as global hash rate continues to increase by continuing to invest in our mining operations. Equally important is our commitment to owning bitcoin to ensure that MARA remains a key player in the ecosystem for years to come.  

Conclusion

Recent transactions underscore our commitment to bitcoin as an essential component of our balance sheet. This is largely due to its absolute scarcity, strong mobility, growing liquidity, and robust security. Growing institutional interest and supportive political landscape provide a favorable backdrop for MARA's initiatives. We are confident in our strategic acquisitions and capital optimization efforts. MARA is well-positioned to capitalize on bitcoin's potential and deliver sustained value to our investors. As MARA continues to navigate the evolving digital asset market, we remain steadfast in our commitment to bitcoin as a strategic asset.