Cathedra Bitcoin will pivot away from Bitcoin mining to providing general data center services and buying Bitcoin on the open market instead, the company said.
Cathedra cited unpredictable profit margins as a cause for the shift.

It was Michael Saylor whose MicroStrategy championed large corporations buying bitcoin (BTC) on the open market. Then, surprisingly, one of the biggest bitcoin mining firms, Marathon Digital (MARA), adopted the same strategy. And now another miner is following the same path.

Cathedra Bitcoin (CBIT), a firm that started as a miner, said it's changing its business model to develop data centers and will use profits from that business to buy bitcoin instead of mining it. "The last three years have demonstrated to us that bitcoin mining is not a reliable way to grow shareholders’ bitcoin per share," the company said in a statement, noting that the firm's primary goal is to accumulate bitcoin for the shareholders.

During the 2021 bull run, mining was seen as a better way to accumulate bitcoin at a discounted price than the open market due to high-profit margins and relatively low hurdle to start the business. That all changed after the recent crypto winter, approval of exchange-traded funds (ETFs) to be traded in the U.S. and the halving – which cut the rewards in half, making mining even more competitive.

The miners are now struggling to stay afloat and accumulate bitcoin at a discounted price, while other public companies, such as MicroStrategy's (MSTR), are getting rewarded by investors for buying bitcoin in the open market.

"Indeed, nine of the 10 largest (by market capitalization) publicly listed bitcoin mining companies hold less bitcoin per share today than they did three years ago. And as a bitcoin miner ourselves, Cathedra has not fared better by this metric. Meanwhile, other listed companies have adopted an explicit policy of increasing bitcoin per share, most notably MicroStrategy (NASDAQ: MSTR), and have been rewarded by equity markets," Cathedra wrote.

The company said it will now pivot to developing and operating data centers, which have more predictable cash flows. The firm will then use the profits generated from that business to buy bitcoin in the open market. In fact, it recently merged with Kungsleden, a developer and operator of alternative high-density compute infrastructure, to achieve this goal.

Additionally, the company will use other options such as debt, equity and bitcoin-linked derivatives to generate funds to buy more bitcoin. Currently, Cathedra holds 43 bitcoin on its balance sheet.

While the company said it's not entirely ditching the mining business and will continue to retain bitcoin mined from its existing operations, it's not hard to see why it pivoted to such a business model. Most recently, bitcoin miner Core Scientific (CORZ) and data center firm Applied Digital (APLD) shares surged after they announced diversifying into high-performance computing (HPC) and artificial intelligence (AI) hosting business.

Meanwhile, stock prices of other miners that haven't committed fully to HCP or AI computing business keep getting pressured as the network hashrate, or a measure of competitiveness, continues to rise to all-time highs, while profitability falls.

JPMorgan recently said the hashprice, a measure of miner's daily profitability, has fallen 2% this month, and is more than 50% below pre-halving levels. Meanwhile, Jefferies said bitcoin mining was notably less profitable in August than in July, and September is shaping up to be another difficult month due to rising hashrate.

"By repositioning the company away from the bitcoin mining business, toward one with more predictable cash flows and which generates attractive returns on capital – developing and operating data centers – we believe our recent merger with Kungsleden will enable Cathedra to generate meaningful growth in bitcoin per share over time," Cathedra said in the statement.

Bitcoin Mining MicroStrategy

Aoyon Ashraf

Aoyon Ashraf is CoinDesk's managing editor for Breaking News. He spent almost a decade at Bloomberg covering equities, commodities and tech. Prior to that, he spent several years on the sellside, financing small-cap companies. Aoyon graduated from University of Toronto with a degree in mining engineering. He holds ETH and BTC, as well as ALGO, ADA, SOL, OP and some other altcoins which are below CoinDesk's disclosure threshold of $1,000.