The cryptocurrency industry experienced unprecedented growth in mergers and acquisitions during 2021, reaching a total value of $55 billion compared to just $1.1 billion the previous year. According to a detailed report from PwC, both the number and diversity of transactions reflect the ongoing maturation of the crypto ecosystem and signal broader adoption of digital assets.
In terms of geographic distribution, the United States led in the total number of deals, accounting for 51% of global transactions—up from 41% in 2020. The Europe, Middle East, and Africa (EMEA) region accounted for 33%, while the Asia-Pacific (APAC) region secured 16% of all deals. When measured by dollar value, EMEA led with $25.5 billion, followed by the U.S. with $24.5 billion, and APAC with $5 billion.
This surge was largely driven by a boom in Special Purpose Acquisition Company (SPAC) mergers centered in the U.S., which included several deals valued over a billion dollars. The average deal size climbed from $52.7 million to $179.7 million. Additionally, cryptocurrency funding deals grew by 645% year-over-year, totaling $34.3 billion in value, with the average transaction size increasing by 143% to $26.3 million.
Looking ahead, PwC anticipates continued momentum through 2022, with a significant rise in venture capital and early-stage startup funding. As SPAC activity moderates, venture capital firms and incubators are expected to become the primary sources of crypto-related mergers and acquisitions.
Cryptocurrency Miner Stocks Experience Sharp Declines
Publicly traded cryptocurrency mining companies have seen their stock values decline amid recent market-wide sell-offs, influenced by the U.S. Federal Reserve's signals around interest rate hikes. Despite this volatility, industry insiders remain optimistic about the sector's long-term prospects and foresee potential consolidation among mining firms.
Stocks of cryptocurrency miners are particularly sensitive to fluctuations in the value of the digital assets they mine. Following recent downturns in Bitcoin and other cryptocurrencies, some mining stocks have fallen more than 50% from their peaks last year.
The Viridi Cleaner Energy Crypto-Mining & Semiconductor ETF (ticker: RIGZ), which holds significant exposure to crypto-mining companies, has declined by 50% since its November high. This drop coincided with Bitcoin’s 40% decline from its all-time high in November.
With investor sentiment turning cautious, access to capital—especially for recently public companies or those planning to go public—has tightened. For instance, Bitcoin miner Rhodium Enterprises postponed its initial public offering due to market conditions, despite earlier expectations of a $1.7 billion valuation.
Matthew Schultz, Executive Chairman of Bitcoin mining company CleanSpark, noted, “Miners who are more reliant on equity may struggle now, as markets are not as bullish as they once were.”
Profitability Under Pressure for Mining Operations
The Bitcoin network’s hash rate and mining difficulty recently hit all-time highs, making it more challenging for miners to earn rewards through transaction verification. At the same time, the price per terahash per day—a key metric for miner revenue—dropped from around $0.40 in November to approximately $0.18, according to Hashrate Index data.
Still, most mining operations continue to generate healthy profits even with Bitcoin trading near $45,000. Schultz emphasized, “Given that most industrial-scale mining operations in North America have a cost to mine one Bitcoin well below that price, the current $40,000 level does not significantly impact mining economics.”
While higher-cost miners may see reduced margins at current Bitcoin prices, profitability remains stronger than during the 2018 bear market, when hash price bottomed near $0.07/TH/day, according to Juri Bulovic, Head of Mining at Foundry, a subsidiary of Digital Currency Group.
Bulovic explained, “That seemed to be an equilibrium level where the highest-cost miners became unprofitable and were forced to shut down, while lower-cost miners continued to operate profitably.”
Fred Thiel, CEO of Marathon Digital, one of the largest publicly traded mining companies, added that the current market correction appears less severe than previous cycles. Bitcoin fell 70% in 2013 and 85% in 2018. Thiel attributes this relative stability to increased institutional participation, which may reduce long-term volatility even amid short-term reactions to Fed policy.
That said, bear markets can still weed out less efficient operators. Miners with access to low-cost electricity and newer, more energy-efficient equipment are likely to outperform those with older hardware or unfavorable energy contracts.
Industry Consolidation on the Horizon
Thiel predicts that reduced access to capital and investor caution will drive consolidation within the mining sector. “In this type of environment, I think you should expect to see a degree of consolidation in the mining space,” he stated.
In a young and highly competitive industry, expansion is essential for maintaining profitability. However, with capital becoming scarcer, mergers and acquisitions may offer a path for cash-constrained miners to fund growth or meet production targets.
Thiel pointed out that miners who have placed orders for new equipment but lack the funds to deploy or pay for them may become attractive acquisition targets. Schultz agreed, noting, “If prices remain low, we expect to see consolidation around miners who lack a sustainable energy strategy and favorable power purchase agreements.”
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Buying Opportunity in Mining Stocks?
Despite recent declines, some analysts see the current correction as a potential entry point for long-term investors. Christopher Brendler, an analyst at DA Davidson, described the pullback as a “healthy correction” that reduces leverage and speculation without excessive pain.
Brendler noted that at current valuations, crypto mining stocks offer a compelling risk-reward profile, even considering concerns around funding growth plans. He remains optimistic about Bitcoin’s near-term recovery and points out that access to capital, while not as robust as six months ago, has improved relative to previous cycles.
Thiel shares this long-term optimism, emphasizing his positive outlook for both the mining industry and Bitcoin’s broader potential. “I remain very optimistic about the long-term growth prospects of the industry and Bitcoin, and I believe Bitcoin will bring more benefits to the world,” he said.
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Frequently Asked Questions
What caused the surge in cryptocurrency M&A activity in 2021?
The increase was driven by greater institutional adoption, a booming SPAC market, and diversified investment into various crypto sectors including NFTs, DeFi, and blockchain infrastructure.
How does Bitcoin’s price affect mining companies?
Mining profitability is closely tied to Bitcoin’s market price. When prices fall, revenue declines, especially for operators with high energy costs or less efficient equipment.
What is hash rate and why does it matter?
Hash rate measures the computational power used to mine and process transactions on a blockchain. Higher hash rates increase network security but also make mining more competitive.
Will miner consolidation lead to greater centralization?
While some fear consolidation could lead to centralization, the inherently decentralized nature of Bitcoin mining and geographic diversity among miners may mitigate this risk.
What should investors look for in a mining stock?
Key factors include energy cost, hardware efficiency, balance sheet strength, strategic power agreements, and management’s ability to navigate market cycles.
Is now a good time to invest in mining stocks?
Some analysts believe recent price corrections offer attractive entry points for long-term investors, though volatility and macro conditions should be carefully considered.