China, once home to the majority of all the CPUs processing Bitcoin, has cracked down on Bitcoin “miners,” spurring other mining companies from around the world to pick up the slack. Newly listed Canada-based Bitfarms (NASDAQ:BITF) is one of the biggest in North America, and while its shares are trailing Bitcoin prices over the last month, it stands poised to benefit from China’s slow exit from the mining market. Even better, it’s priced below publicly traded rivals Riot Blockchain (NASDAQ:RIOT) and Marathon Digital Holdings (NASDAQ:MARA) on nearly every measure.
China is helping them all out. Beijing has big plans for a digital renminbi, and it doesn’t want Bitcoin’s competition. After putting the regulatory squeeze on crypto in general for years, China’s latest anti-miner move sent Bitcoin prices crashing, and drove the Bitcoin-making supply chain off mainland China to avoid the ensuing political risk. Now, Bitfarms and its fellow North American miners are swooping in to capitalize on this big change.
How Bitfarms sizes up to the competition
In a July 14 statement, CEO and co-founder Emiliano Grodzki said China’s mining ban has doubled Bitfarms’s market share — and that the exodus of Chinese mining operators there seeking new hosting may take an extended period of time to resolve.
Miners like Bitfarms use powerful computers that race to solve complex equations known as hashes. Simply put, whoever wins gets to produce an order of Bitcoin (BTC), rewarding miners in BTC for putting their computing power to work to keep Bitcoin’s network safe and its transactions running smoothly. More computing muscle, both from the number of mining rigs crunching numbers and the speed at which they do that math, means a greater hashrate, more Bitcoins mined, and more money made.
Bitfarms isn’t the fastest miner. Its hashrate lags publicly traded mining rivals Riot and Marathon. But as of July 14, Bitfarms’s hashrate-to-market cap measure remained far lower than the competition – about a third as much as Marathon’s, and less than one-fifth Riot’s – meaning Bitfarms investors pay a much lower price for an equivalent amount of computing muscle.
Hashpower isn’t the only way to measure a miner’s success; companies have to pay for the electricity to run all those computers. In May, Bitfarms President Geoffrey Morphy said it costs the company around $0.04 per kilowatt-hour to keep its miners running; Riot and Marathon report paying less than $0.03.
The company’s trying to ink a deal in Argentina, home of its founders, to build a Bitcoin miner hooked into a private natural gas power station for $0.02 per kilowatt-hour . But if this very early, tentative deal goes through — far from a guarantee — Bitfarms would become one of the lowest-energy-cost producers of BTC in the Americas, if not the lowest.
Heading out of the red
Bitfarms spent much of the last two years selling all the Bitcoin it mined to buy a new, faster mining fleet and grow its operations. It’s lost money not only because of falling Bitcoin prices, but also because of those investments. But this is changing, Morphy told investors in May.
In January, February, and again in May, the company used private stock sales to raise a combined total of roughly $155 million in Canadian dollars to fund growth and investment . That freed Bitfarms to stop bleeding cash and start adding bitcoins to its own books in May. In February, it paid off $20 million borrowed from Dominion Capital to build out new facilities to hold their mining equipment.
Bitfarms and both its main rivals have big plans to add computing power and boost their hash rate — an ongoing arms race that none can easily win. But Bitfarms also has a few cost-cutting advantages its rivals lack.
Bitfarms owns 100% of energy solutions and services provider Volta Electrique, which can conduct any repairs to Bitfarms’s electrical infrastructure without requiring a costly outside contractor. Same goes for its fleet of mining computers; a resident “geek squad” can fix broken machines instead of sending them back to China for service, reducing downtime and maximizing mining output. That may help to explain why, despite reporting fewer mining rigs and a lower hashrate, Bitfarms still mined more coins than Riot or Marathon through the first six months of 2021.
The company also takes pains to assure investors that its accounting is on the up-and-up. “We are one of the very few firms that is audited by one of the Big Four accounting firms which puts incredible rigor on us but you can be assured that our numbers are solid,” Morphy told investors. “We take a lot of pride in the fact that we’ve got a solid foundation.”
Bitfarms’ potential future
If Bitcoin goes anywhere near its all-time highs around $60,000, Bitfarms could rise right along with it. Right now, it offers a cheaper entry point into a growing industry.
As of early August, Bitfarms trades at roughly 18 times sales, compared to Riot’s 102 and Marathon’s 264. When you add in the company’s assets and debt, Bitfarms’s enterprise value-to-revenue ratio also makes it a value Bitcoin miner play, at around 17 compared to Riot’s 95 and Marathon’s 226.
Even as the tailwinds from China’s crypto crackdown diminish, look for Bitfarms to continue to invest, possibly issuing additional bonds to fund growth without burning all its Bitcoin savings. The company’s now mining approximately 13 bitcoins daily, up from eight when it began doing so in May, with a total stash of 1,678 as of the end of June 2021. This is money in the bank that Bitfarms can use to expand its Quebec-based mining operations and — perhaps — build in Argentina next year.
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