The Bitcoin (BTC) mining sector finds itself entrenched in a fervent consolidation wave, a shift precipitated by the recent halving event in April. Investment bank Architect Partners shed light on this phenomenon in their latest report, underscoring the strategic imperatives driving this trend.

“The primary catalyst behind this consolidation is the pursuit of expansive, scalable data center capacity coupled with access to cost-efficient power and capital,” stated Eric Risley, Managing Partner, alongside Analyst Arjun Mehra. “These advantages are more easily realized as companies grow in size.”

A prime example of this ongoing M&A activity is Bitfarms’ (BITF) proposed acquisition of Stronghold Digital Mining (SDIG). This deal stands out particularly because Bitfarms recently fended off an unsolicited takeover bid from rival mining firm Riot Platforms (RIOT) in May. Riot subsequently acquired a 19% stake in Bitfarms through open-market purchases, expressed discontent with management, and initiated a proxy battle aimed at replacing two board members, according to the report.

“Sometimes, the most effective defense is a strong offense,” the report noted, alluding to Bitfarms’ subsequent announcement of its Stronghold acquisition alongside management and boardroom shake-ups.

Also, read – DBS Bank Pioneers Blockchain-Enabled Government Grant Distribution for Enhanced Efficiency and Transparency

However, the report cautioned that hostile takeovers in the realm of M&A are notoriously challenging, particularly in technology and financial services sectors where human talent is paramount. Yet, the Bitcoin mining landscape is distinct. In this industry, the primary assets are not the people but the physical infrastructure—data centers with access to electricity and widely available computing power.

Architect Partners also highlighted the irony in the current consolidation phase, pointing out that Satoshi Nakamoto, Bitcoin’s enigmatic creator, envisioned a decentralized network where anyone with a computer could mine the cryptocurrency, ensuring a dispersed control of the network’s hashrate. Hashrate, which serves as a proxy for competition within the mining industry, and mining difficulty, was meant to be distributed across many participants.

The implications of this ongoing concentration within the mining sector remain to be fully understood. However, some industry figures, such as Jack Dorsey and the company he founded, Block (SQ), are actively working to counteract this trend. The report noted that Dorsey and Block are investing in the development of semiconductors and systems aimed at restoring the decentralized nature of Bitcoin mining.