Bitcoin mining – Canada’s tribunal strikes down Bitfarms’ ‘poison pill’ strategy

Bitfarms’ attempt to initiate a “poison pill” strategy to counter a potential takeover by Riot Platforms, Inc. has hit a roadblock. The defensive measure, known as a shareholder rights plan, was designed to prevent Riot from acquiring more than 10% of Bitfarms’ shares without board approval.

However, a cease and desist order from Ontario’s Capital Markets Tribunal means these efforts have now been nullified. According to Riot Platforms CEO Jason Les,

“This ruling from the Tribunal in favor of Riot’s application is a win for all Bitfarms shareholders.”

The “Halving” effect

The timing of this move is critical, especially since it follows Bitfarms reporting an earning of only 156 BTC in May – A significant drop of over 40% compared to April. While the same did climb to 189 BTC in June, the general decline in earnings can attributed to the “post-halving” economics following Bitcoin’s latest halving event.

Bitcoin halvings, which reduce the rewards for mining new blocks by half, have a profound impact on the mining industry. These events are intended to control the supply of Bitcoin and reduce inflation, but they also increase the cost of mining operations. The latest halving has made it more challenging for miners like Bitfarms to maintain profitability, especially as the rewards for mining diminish.

According to Juan Leon, Senior Crypto Research Analyst at Bitwise, a combined operation of Riot and Bitfarms could result in a significant increase in mining capacity. The merger could bring about,

“52 EH/s of self-mining capacity by the end of 2024 across 15 sites globally.”

This potential synergy underscores the strategic importance of the acquisition for Riot, aiming to strengthen its position in the competitive Bitcoin mining industry.

Joining hands the best move?

The Bitcoin mining sector has been heavily influenced by the economic adjustments following halvings. Miners face increased pressure to optimize their operations and cut costs to remain profitable. The reduction in mining rewards forces companies to innovate and scale their operations to maintain their market positions. For Bitfarms, the fall in BTC earnings highlights the immediate effects of the halving and the necessity to adapt swiftly to these changes.

Riot’s interest in Bitfarms suggests a strategic move to consolidate resources and enhance operational efficiency. By combining efforts, the two companies could leverage economies of scale and improve their overall competitiveness in the market. However, Bitfarms’ defensive position indicates its determination to remain independent and protect its shareholders’ interests.

Bitfarms’ implementation of a “poison pill” strategy is a significant move to thwart Riot Platforms’ takeover attempt. The decline in BTC earnings due to post-halving economics and the potential benefits of a merger highlight the challenges and opportunities within the Bitcoin mining industry.