Summary Bitfarms has shed an enormous amount of debt over the last 7 months. The company is a top 5 producer by exahash capacity and a top 2 producer by breakeven cost. Barring something catastrophic, BITF should be able to scale a BTC position leading up to the halving next year. As Bitcoin ( BTC-USD ) and many other tokens in the cryptocurrency market have enjoyed a relief rally over the last several weeks, some of the more crypto-focused equity names have had substantial year to date moves. Bitcoin miners have been no exception. Of the larger market capitalized public miners, Bitfarms ( BITF ) has had the best year to date run so far having increased roughly 160% in 2023: YTD (Seeking Alpha) It should be noted for the benefit of full context that all of these companies are down somewhere between 65-70% over the last twelve months and these ytd moves still have all of these shares well off highs. In addition to the larger share price bounce year to date, Bitfarms has also seen a strong reduction in its short position having gone from over 8% of the shares outstanding in late 2022 to 4.5% now: Data by YCharts Compared to the aforementioned peers, Bitfarms now has the smallest short position of the bunch. Sentiment change? Crypto winter has been enormously negative for the publicly traded Bitcoin miners. We've seen serious financial problems plague many of these companies over the last several months. Core Scientific ( OTCPK:CORZQ ) filed Chapter 11. Argo Blockchain ( ARBK ) sold assets and recently announced CEO Peter Wall's resignation. Iris Energy ( IREN ) forfeited machines and Hut 8 ( HUT ) just announced a merger. One could argue if you're a publicly traded miner with some debt and you're still standing, you've probably navigated the climate fairly well and Bitfarms appears to have done exactly that. Miner Profitability (BitInfoCharts) No doubt in part because of the rise in the price of Bitcoin over the last several weeks, we've seen miner profitability improve for the industry broadly speaking. According to a recent report released by Blockware Solutions, Bitfarms is one of the most efficient mining operations in the public market: BTC Breakeven (Blockware Solutions) At a $35.5k breakeven Bitcoin price when factoring in both opex and cost of revenue, only Iris Energy has a cheaper "all in cost" for Bitcoin mining. Still, Bitfarms might be the better play at this point because it has consistently had monthly BTC production between 400-500 for the last half year: BTC Production (Company releases) For a variety of different reasons, that hasn't been the case for all of these other companies as Iris, HIVE Blockchain ( HIVE ) and Hut 8 have all seen monthly production decline significantly since last summer. Debt Relief High debt loads have taken their toll on the broader mining space but Bitfarms has navigated that climate very well from where I sit. Last month Bitfarms announced the company was attempting to reduce its debt obligations to BlockFi. The debt was actually through the Backbone Mining Solutions subsidiary, or BMS, and was secured by BTC and mining rigs. Given the climate in the industry, it no longer made sense for BMS to service that debt and default was on the table: The current market value of the assets securing the loan is estimated by BMS to be approximately $5 million, while the outstanding principal and interest is approximately $20 million. A little over a week ago, Bitfarms announced that it had successfully agreed to wipe out $21 million in debt owed to BlockFi through a one time cash payment of $7.75 million. On February 8, 2023, BlockFi retired the BMS loan in its entirety and discharged all further obligations for consideration of $7.75 million in cash. Subsequent to the settlement, all of BMS’ assets, including 6,100 miners, are unencumbered . Bold my emphasis. While this payment was for more than the assets securing the loan were worth, this is a massive win for Bitfarms in my view because the company has reduced debt outstanding from $47 million in mid-January to approximately $25 million today according to the press release. And the company has been able to accomplish that without sacrificing machines or reducing liquidity to a problematic level. Things looked really bad for Bitfarms during the summer. After amassing one of the largest BTC positions of any public miner, the company started dramatically selling off Bitcoin in June: BTC Treasuries (Company filings) Even though the company has a far smaller BTC position than it did last summer, its debt obligations are much more workable having been reduced from $165 million in June to just $25 million now. BITF still has one of the best all in costs for BTC mining and a top 5 exahash production capacity of 4.7 EH/s. Things are looking up. Risks One thing to be aware of is BITF is flirting with a Nasdaq delisting because of a share price down near $1. There is also no guarantee that Bitcoin's price will remain near the current $25k level or even above $20k for that matter. In the event that crypto winter continues for a sustained period of time, Bitfarms will probably struggle with the rest of the industry. Summary But there is a lot to like about Bitfarms right now. The aggressive reduction in debt outstanding over the last 7 months has been impressive. If the broad crypto market rally continues Bitfarms should outperform some of the other leading miners given its low all-in cost compared to peers and its top 5 EH/s capacity. I'm not currently long BITF shares, but it's definitely a name that I think will be worth adding now that the debt story has improved dramatically without costing the company its machines. Crypto has rallied significantly in recent weeks and that has led to some overbought indicators. Being opportunistic with buys is the way to go for the time being, in my view. For the miners specifically, it's very much a race against time as the halving approaches next year. But there aren't very many companies that are positioned as well as BITF is now positioned to benefit from what is likely to be a major upward move in BTC price following the halving.
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