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As Bitcoin (BTC) continues to stay in a period of strong consolidation and correction, Bitcoin miners are now resolving to their own way of “yield farming”.
Bitcoin mining giants like Marathon Digital and Riot Blockchain often believe in their HODLing strategy for long-term gains. However, times of consolidation or long-term bear cycles could be challenges. These companies have huge operational costs in terms of equipment investments, hardware, and electricity bills.
Bloomberg reports that rather than selling Bitcoin to raise additional funds, these miners are selling Bitcoin call options to get money out of their holdings. Thus, they are adopting the old-school yield-generating strategy deployed using conventional finance.
These mining giants are leveraging the fact that “contracts frequently expire worthless”. In this case, the owner of the contract gets nothing. However, the Bitcoin miner, who sold these contracts can keep the amount the buyer paid to purchase these options.
As Bloomberg explains: “Bitcoin now trades around $39,000. If a miner sells a call with a $50,000 exercise price and Bitcoin fails to rise to that level by the time the contract expires, the miner makes money”. Joshua Lim, head of derivatives at New York-based brokerage Genesis Global Trading said:
“Bitcoin miners are some of the most voracious yield seekers in the market today. These miners are getting annual returns, or yield, in double-digit percentages. When Bitcoin is in a range-bound market, this type of yield-generating strategy will outperform a mine-and-hold or mine-and-liquidate strategy”.
However, there could be major risks in the upside market. So if Bitcoin hits the exercise price., the miners will have to book a loss.
Bitcoin Yield Farming for Rapid Expansion
As per the Bloomberg report, public listed Bitcoin mining companies are looking for new yield strategies to fund their operations. Interestingly, they are looking out at way without issuing new shares or debt. Fred Thiel, chief executive officer of Las Vegas, Nevada-based Marathon said:
“We use call option straddles, where essentially you sell a call option and then buy one at a higher price so that you don’t miss out on the upside. Historically, it has generated more than 10% annually.”