Bitfarms Ltd Expects to Grow with Cheap Electric Help

Bitfarms Ltd. (TSXV:BITF) mined 3,252 Bitcoin, 2,577 Bitcoin Cash, 6,234 Litecoin, 964 Ethereum and 611 Dash coins during 2018

operates blockchain computing centers, which power the global decentralized financial economy. In 2018, Bitfarms generated consolidated revenue of $33.8M along with a net loss of $18.2M.

Company Overview

Bitfarms is a vertically-integrated blockchain infrastructure company that focuses on providing computing power to cryptocurrency networks, such as Bitcoin. Bitfarms operates four blockchain compute centers through its ownership of Backbone Hosting Solutions Inc. For each crypto network that it secures and processes a transaction, the Company earns a fee. See Bitfarms’ corporate website for more information.

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Currently, the Company has four facilities that it operates in Quebec, Canada:

  1. Farnham, which has 10 MW capacity;
  2. Saint-Hyacinthe with a 10MW capacity;
  3. Cowansville, which has a 4MW capacity; and
  4. Magog with a 10 MW capacity.

All of the Company’s facilities are powered by hydroelectric power, which has an average cost of US$0.04/kWh in the province of Quebec. These facilities currently generate about 308 Petahash per second of installed computational power. For reference, a hash is involved in the calculation used to verify a bitcoin transaction and 1 Petahash is one quadrillion hashes per second.

Bitfarms Farnham Facility

Source: (Corporate Website, 2019)

Bitfarms Ltd’s strategic location in Quebec has allowed it to gain access to a stable, reliable and relatively cheap energy source. Quebec has abundant access to hydroelectricity, and Hydro-Quebec has decidedly recent to allot 668 MW of hydroelectricity to the cryptocurrency sector. Additionally, the Company has signed an electricity agreement with Sherbrooke city council that secures the Company 98 MW of electricity, so long as it reduces energy use during peak usage times of the year (The Globe and Mail, 2019). We believe the support of the city will help increase barriers to entry for future competitors and should provide Bitfarms with an economic moat.

BITF also has plans for expansion to benefit from the current reasonable pricing of hardware. To help finance this operational expansion, the Company has secured US$20M in loan financing at an interest rate of 10% from New York-based Dominion Capital LLC. The financing is available through four tranches of US$5M each. The proceeds are expected to be used to purchase new generation, higher-efficiency mining hardware and for construction of Phase 1 and Phase 2 of its new modern computing centre (Financial Post, 2019). The Company has a fifth fully-funded facility in its pipeline, which is expected to come online in Q4/19 with an expected capacity of 30MW.

Bitfarm utilizes on-site monitoring and a repair lab. In an industry where timing plays a vital role in making money, Bitfarm’s in-house access to technician services help them streamline any potential problems they may face.

How Bitfarms’ Operations Work

Mining for cryptocurrency, or hashing, is essentially a computer submitting multiple solutions to try to solve a mathematical problem. In total, Bitfarm’s factories hold at a minimum 16,500 hashing machines between them and every second they can conduct 220 quadrillion attempts to try to solve the math problem that is formed when a block of bitcoin transactions reaches capacity. The first computer that can figure out the winning number is awarded a set amount of Bitcoin and is permitted to create a new block in the chain that allows Bitcoin transactions to be recorded (BNN Bloomberg, 2019). The Company designs and manages software that monitors the performance of each computer.

How the Validation of the Transaction Works

Source: (Corporate Website, 2019)

Overview of 2018 Financial Performance

In 2018, Bitfarms generated consolidated revenue of $33.8M and a net loss of $18.2M. Throughout the year, the Company engaged in multiple expansion initiatives, which included:

  1. Acquiring Volta électrique, an electrical services company in Quebec;
  2. Completing its construction of a centralized repair lab in Saint-Jean-sur-Richelieu;
  3. Purchasing and installing about 6,500 ASICs at its 10MW facility in Saint-Hyacinthe, Quebec; and
  4. Completed construction of its new 10MW facility in Magog, Quebec and has begun partial mining operations at 1.5MW.

Bitfarms Ltd’s mining operations segment produced revenue of $31.6M and had a net loss of $16.6M. In total in 2018, the Company mined 3,252 Bitcoin, 2,577 Bitcoin Cash, 6,234 Litecoin, 964 Ethereum and 611 Dash coins.

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