The Problem with Bitcoin
Block Green is on a mission to build applications in the Bitcoin ecosystem, which will solve real world problems and add tangible value.
As of today, Bitcoin’s main use cases revolve around being a speculative asset and a reserve asset. A growing share of the Bitcoin supply is idling in inactive addresses, constraining the liquidity of Bitcoin and hindering its potential. A key constraint of Bitcoin today is that bitcoin holders lack attractive solutions to put their bitcoin holdings to work and earn passive alpha. This is mostly due to the absence of:
- Scalable solutions offering return on bitcoin at attractive levels (at the time of writing, the average bitcoin yield products delivers below 1% APY)
- Integrated or embedded solutions built for Bitcoin assets to be deployed
We believe that the Bitcoin mining industry can benefit tremendously by filling this void. The Bitcoin mining industry has recently experienced an unprecedented level of growth driven by the public’s increasing interest in Bitcoin. In the past 24 months, 30+ Bitcoin Mining firms have listed on stock exchanges with a combined peak market value of more than $5 Bn.
As a result of this inflow of equity, Bitcoin miners have invested billions of dollars in new infrastructure and equipment. Despite this phenomenal growth, very few dedicated financial instruments and solutions are currently available to this nascent industry. On the contrary, the offered debt alternatives have in fact decreased, with few remaining lenders capitalizing heavily on this highly capital-dependent industry.
The past months (Q3 2022) have been amongst the most difficult for Bitcoin miners, with several large players liquidating their bitcoin holdings or even closing down entirely. The main problem for Bitcoin miners lies in the volatility between their bitcoin-denominated revenues and fiat-denominated cost structure.
A common denominator among those mining operations that were forced to liquidate their bitcoin reserves
werelarge amounts of fiat-denominated and overcollateralized (120-140%) loans. When bitcoin price plummets, margin calls are triggered as the underlying loan collateral value (bitcoin, ASIC’s) also closely correlates with the bitcoin price. The result are industry-wide defaults involving debt restructuring and refinancing with unfavorable agreements.
We see a large opportunity for a solution that can solve the lack of attractive and scalable returns on bitcoin by unlocking tremendous value for the Bitcoin mining ecosystem.