The Loka Mining CEO, a decentralized mining pool operator, said he had discovered a method to sell future hashrate to finance short-term growth.
Andy Fajar Handika, a decentralized mining pool operator and Loka Mining CEO, has discovered a method to sell future hashrate to finance short-term requirements and growth as Bitcoin miners continue to capitulate due to high costs and decreased block rewards.
Loka Mining CEO Propose hashrate Contracts plan
Loka Mining CEO proposed the concept of forward hashrate contracts in an interview with Cointelegraph. These contracts enable miners to exchange their future hashrate for fiat-denominated loans from creditors, potentially maintaining the capital-intensive business.
He elaborated that these proposed hashrate forward contracts enable smaller Bitcoin mining operations to finance expansion and pay for operations today while utilizing the Bitcoin hashrate of tomorrow.
Handika elaborated on the advantages of these tokenized contracts, which are currently available from Loka Mining in terms of three months, six months, and one year:
“It means that you can use your debt money to buy more mining machines and hedge your price volatility risk because the risk of Bitcoin’s price in fiat is now passed over to the investors, who buy the mining contract.”
The Loka mining CEO also stated that creditors benefit from the tokenized arrangement because the hashrate forward contract can be repurposed as collateral for other loans, a process similar to asset restaking.
The method provides a viable alternative to the conventional financing strategies employed by large mining companies, which include issuing corporate debt or using initial public offerings to expand their mining operations.
This luxury is not afforded to smaller mining companies or individual miners, who frequently must finance growth by selling their Bitcoin holdings or using their Bitcoin as collateral for loans on decentralized finance (DeFi) protocols.
Handika asserts that these DeFi strategies are fraught with significant risk as a result of the abrupt decline in the price of Bitcoin, as evidenced by the “black swan” event that caused Bitcoin’s price to plummet from approximately $59,000 to approximately $49,500 on August 5, 2024.
The Bitcoin mining industry is facing economic difficulties
Mining expenses have increased by 168% in the past year, according to a recent report from cloud mining company BitFuFu. Bitcoin mining companies have experienced a substantial economic burden due to the decreased block subsidy and escalating costs.
The new post-halving reality has caused significant stress on numerous mining companies as Bitcoin miners attempt to offset the decline in profits by diversifying their operations into high-performance computation and artificial intelligence.
A recent report from JPMorgan also illuminated the current state of the mining industry. The report discovered that mining companies, including CleanSpark and Riot Platforms, which were financially robust, acquired companies that were no longer viable in light of the industry’s ongoing consolidation.
