Horizon Kinetics To Launch New Bitcoin Mining Business
Firm to combine its two mining companies amid the industry’s maturation and investor demand
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key takeaways
- Horizon Kinetics was formed in 1994 and manages about $7 billion in assets
- The company currently runs a few thousand bitcoin miners but is looking for opportunities to add more
Investment management firm Horizon Kinetics is set to launch a new mining company in the coming weeks as investors are “clamoring for more” exposure to bitcoin, Chief Operating Officer Alun Williams told Blockworks in an interview.
Founded in 1994, the firm has roughly $7 billion assets under management, according to James Davolos, portfolio manager and research analyst at Horizon Kinetics.
Horizon Kinetics started its first mining company, HK Cryptocurrency Mining, in 2017 through an initial capital raise of $5 million. The funding came from its “direct traditional and asset management clients” as well as other principals and partners at the firm, Williams said.
“That company was started to really learn the infrastructure behind our direct investments in bitcoin,” he noted.
“We felt that we really couldn’t understand bitcoin without understanding mining as well because they are so closely tied to each other.”
The company became a “good profitable proposition” at the time, Williams said, but some clients who didn’t invest in 2017 were curious and eager for other opportunities to put money in.
Horizon Kinetics formed a second company, HK Cryptocurrency Mining 2, in 2018. It was capitalized with roughly $8.5 million.
“Over that time, we were very slow and deliberate with our deployment of the capital … purchasing rigs and entering into hosting contracts,” he added.
Investors began “clamoring for a bit more and we felt like the industry was maturing and there was an opportunity there to take these two (mining) companies and do something bigger with them,” he said.
The company is set to combine the companies under a new business called Consensus Mining & Seigniorage Corporation, Williams said.
Horizon Kinetics’ current project has three phases: merging the two companies together, raising additional capital from direct existing clients and subsequently doing a direct listing with OTC market, Williams said.
“With a direct listing no shares will be tradable for maybe 12 months, but the idea is to give the value to all those investors in terms of any potential market multiple as well as give them liquidity,” Williams said.
“It’s an exciting time for us and we see many other companies recently go public,” he added. “But we operate in a very different way in a very deliberate and methodical deployment of our capital to make sure we’re not putting our investors’ capital at risk, but also improving and growing it over time.”
The company plans to build its hashrate and replace it over time as older equipment becomes less profitable or breaks down. It is currently running a few thousand bitcoin miners, but will look for opportunities to add more, said Kevin McRae, Horizon Kinetics’ director of technology and chief information security officer.
In the near term, the business plans to finalize capital commitments for the launch and hopes to raise between $40 million to $60 million from clients and partners, Williams said.
US bitcoin mining growth
Industry watchers have generally viewed the China mining exodus as a positive for the US cryptocurrency mining industry. Beijing’s crackdown on the country’s industry has led to a flood of miners landing and operating in the US.
In October, data from the University of Cambridge showed that the US overtook China as the world’s leader in bitcoin mining networks with an average monthly hashrate share of 35.4% in July of 2021.
“With all the land we have here in the US, bitcoin can be a tremendous offload for (solar and wind) power, which is just wasted in so many other markets,” Davolos said.
“I think the US grid, the way our grid functions and the way it’s evolving, is uniquely situated to really benefit from crypto as an offload for the intermittent power.”
Many clients who mine bitcoin have moved to North America following regulatory clampdowns, Cynthia Wu, founding partner at Matrixport, told Blockworks in October.
Although there will be challenges in the environment, from bear markets to chip shortages, the space is an interesting opportunity and will be profitable long term, Williams said.
“The US, when you compare it to other countries, is a very welcoming place to do this business,” he added. “The industry itself is growing significantly here…and the US wants to embrace mining as an industry and take part of that.”
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