An Undervalued Opportunity in Bitcoin Mining

September 1, 2021

Maybe that’s not a super sexy title, but we’re going to be blunt here; the time to get in on one of the biggest, publicly listed Bitcoin miners in the world is NOW. Bit Digital (Nasdaq: BTBT) is currently an overperforming, undervalued opportunity, and they have consistently added more computing power to their Queen’s Navy fleet of miners. With solid audited financials and projections, Bit Digital is an excellent investment for those looking to get in on crypto mining. 

 

 

A Quick Bit

Potentially Undervalued – We believe that Bit Digital is worth more than it’s trading at. Period. When compared to peers like Marathon Digital Holdings (MARA) and Riot Blockchain (RIOT), Bit Digital has a significantly higher current hash rate (more on that in a bit), yet Bit Digital is currently traded at a lower market cap. Basically, Bit Digital is in a stronger position to collect bitcoins while being traded for less money, making them an excellent value play. 

Grow Baby Grow! – Bit Digital is relatively young, they only started mining in February of 2020, so there isn’t an overly long history to compare financials. But the mere acceleration of their growth is impressive. In all of 2020 they earned 1,510 bitcoins, compared to 1,013 earned in Q1 of 2021. And they’ve continued to grow. They’ve added miners steadily, with an addition of 4,871 units between April 1st and May 6th 2021. The direction of Bit Digital is clearly moving up.

North American Capacity – We’re gonna hit you with some quick math; Bit Digital earned 1,013 bitcoins for their mining activities in Q1 2021. This number fell to 562 in Q2 as many of their miners were in transit from China to North America, but we expect it to return to and even exceed previous levels as more miners come back online. Bit Digital has accelerated their migration program, bringing even more miners to North America from China.

Profiting from China’s Bitcoin Ban – In addition to shipping their own miners from China to North America, Bit Digital is taking advantage of China’s recent bitcoin ban by acquiring new miners inexpensively at spot price on the Chinese market. These miners will be shipped to the US and Canada and added to Bit Digital’s existing fleet.

Upside Potential – While the value of Bitcoin isn’t the only thing that makes Bit Digital attractive, it doesn’t hurt. As the value of Bitcoin rises, Bit Digital can ride that wave. We’ve seen it before in commodities like gold and oil, and we’re seeing it happen now with crypto. 

Clean Crypto – One criticism of bitcoin mining is that it uses quite a lot of power. In many cases, from fossil fuels. Bit Digital is taking a conscious approach to their utilities, and a large chunk of their wattage is generated with renewable or carbon-free methods. By taking a more environmentally friendly stance, Bit Digital will be able to grow their operations and leave a smaller carbon footprint. 

 

The Digital Gold Rush

It’s almost impossible to avoid comparing the current crypto craze to the California Gold Rush. It makes sense; tons of people are making and losing fortunes in crypto and its surrounding industries, the entire topic is shrouded in romanticism, and one can’t help but wonder if they should try to get in on the action. 

Bit Digital (Nasdaq:BTBT) is a bitcoin mining company, making real strides in the space. In just a little over a year, they have become one of the biggest miners in the world. They have (as of this writing) acquired 45,736 miners, achieved a hash rate of 2,574 Ph/s, and mined 2,523 bitcoins. Their Q1 2021 net income was $35.79 million and earnings per share were $0.74 for the first quarter, compared with a net loss of $3.85 million and a loss per share of $0.25 for the same period last year. That’s a huge amount of growth in quite a short period of time, and we think that will only accelerate as they continue to expand. 

 

A Bit About Mining 

For those not 100% in the know (don’t worry, you’re not alone) mining for bitcoins is a relatively straightforward process. Here’s the investopedia definition, “Bitcoin mining is the process by which new bitcoins are entered into circulation, but it is also a critical component of the maintenance and development of the blockchain ledger. It is performed using very sophisticated computers that solve extremely complex computational math problems.” Basically, a bitcoin miner solves a complex equation and gets a bitcoin in return for the trouble. Simple enough, right?

It’s kind of like traditional mining, in the sense that it requires a great deal of effort and capital to extract value. One needs equipment, workers, and a decent amount of luck to find success. But this is the age of computers, so where it differs from traditional mining is in the discovery of resources. If one were mining for gold or oil, they could expect to invest a great deal of time into actually finding it. This is where mining for bitcoins becomes, in some ways, easier than mining for minerals. 

Miners know where the bitcoins are, and they know how to get to them. It’s as if all the gold in the world was in one place, and you just needed the biggest, fastest drill to get to it first. So crypto miners like Bit Digital are busy building the best drills they possibly can, to maximize their ability to solve equations for the blockchain, thereby winning bitcoins. 

This is why hash rate is so important. A network’s hash rate represents the amount of problems (hashes) they can solve per second. You’ll usually see it measured in petahashes (PH/s) or exahashes (EH/s). One exahash is 1,000 petahashes. The higher the hash rate, the more likely that a miner will solve a given problem and be awarded bitcoin. The bigger and faster the drill, the easier it is to reach your “gold”. 

 

Leading the Charge for Sustainability 

As highlighted in a recent (July 1, 2021) Bloomberg piece, Bit Digital is going to great lengths to transform the way they use energy, mitigating the negatives associated with powering Bitcoin mining operations. 

According to the CFO and Director Erke Huang, Bit Digital is currently operating using 55% renewable energy sources. Their ultimate goal is to reach 100%, and as signatories of the Crypto Climate Accord, “Bit Digital has committed to achieve net-zero emissions from the electricity consumption associated with all of its respective crypto-related operations by 2030 and to report progress toward this net-zero emissions target using best industry practices.” – from the press release. 

“To date, Bit Digital has taken major steps to ensure sustainability of our mining operations, and by signing the CCA we have emphasized our commitment to decarbonization,” said Bryan Bullett, CEO of Bit Digital. “As of our most recent quarterly reporting, our fleet was running on a majority carbon-free power. We also participate in sustainability initiatives such as a previously announced demand-response energy curtailment program. Going forward, we intend to expand our use of clean power as we scale.”

Bit Digital is paving the way for other mining operations to follow suit, demonstrating how they utilize energy that would otherwise go to waste (called “stranded” energy), and are emphasizing solar and wind power whenever possible. 

As more people begin to look at Bitcoin the way we used to look at gold, i.e. as a store of value with limited supply, Bit Digital is hopeful that they can be a part of minimizing the environmental cost of obtaining such a commodity. Based on the direction they’re headed, we think their hope is well-founded.

 

Building A Bigger Drill

Here’s where it starts to get interesting, and why we’re so hot on Bit Digital. They have acquired almost 46k mining computers, achieving a hash rate of 2.57 EH/s. To put that in perspective, the entire Bitcoin mining network is estimated at 161 EH/s, meaning Bit Digital represents a little over 1% of the entire mining network’s hash rate. 

Much of Bit Digital’s recent efforts have been geared toward acquiring more computing power, purchasing 4,871 new mining computers earlier this year. It looks like the plan is to continue adding miners, via purchasing on the spot market to expedite delivery. So far it’s been a good strategy, as Bit Digital has maintained a superior current hash rate to peers like Riot Blockchain and Marathon Digital Holdings. 

And here we want to point out, again, Bit Digital appears undervalued. From a pure numbers perspective, they are mining more bitcoins, faster, with a lower market cap. Bit Digital has a hash rate almost DOUBLE that of Riot Blockchain (2.5 EH/s v. 1.3 EH/s). That suggests Bit Digital can expect to earn significantly more bitcoins in the immediate term than Riot Blockchain is expected to, yet Bit Digital’s market cap is currently 429M compared to Riot’s 2.3B. 

If you were waiting for a sign to get in on a crypto miner:

 

Horsepower Isn’t Everything

The raw computational power is definitely a big piece of the crypto mining business, but there are other factors to consider. One of the big variables in this industry is utility cost. Mining digital tokens takes considerable wattage, and finding ways to minimize (and pay for) that cost are key to long-term success. 

Bit Digital uses third party hosting, a pretty standard strategy for crypto miners. Basically, Bit Digital owns the machines doing the computations, and a different company physically stores them and gives them a power source. This ensures that there is a consistent power supply so that mining can be optimally maintained. The cost for utilities and storage is more manageable and scalable when outsourced the way Bit Digital does it.  

Doing their hosting this way also allows Bit Digital to maximize their sustainability. A growing concern among some populations is the carbon cost of crypto mining, and by choosing the right partners Bit Digital is mitigating those concerns. 

Migration to Exclusive North American Production

Following China’s recent ban on Bitcoin, Bit Digital has accelerated their migration efforts, planning on having the majority of their miners operational in the US and Canada by the end of the year. 

According to the company: In October 2020, we commenced our strategy of migrating our mining assets from China to North America. Following the recent announcement of the Chinese government’s decision to ban bitcoin mining, we immediately suspended our remaining mining operations in mainland China, effective June 21, 2021. 

Accordingly, we further accelerated our migration strategy that had been ongoing since October 2020. As a result, a greater proportion of our fleet was offline than in the prior quarter, due to more miners being in transit to or awaiting installation in North America. Prior to shipment, we generally refurbish our miners in a facility in Shenzhen, China, to ensure their resilience during transport and operability upon arrival. Miners are securely packaged and shipped by air or by sea, depending on market conditions.

During April through June 2021, we shipped 14,500 miners to the United States. We expect to complete the migration of all, or the majority, of our remaining China-based miners to North America in the third quarter of 2021, although we anticipate the possibility that certain miner shipments may arrive in US early in the fourth quarter of 2021.

Bit Digital is also taking advantage of the Chinese bitcoin ban by acquiring additional chinese miners at spot prices and shipping them back to North America.

Look for dramatically increased Bitcoin production as these miners arrive in North America and come back online.

 

Bit Digital Expands North American Footprint with New 40MW Agreement with Compute North

NEW YORK, — Compute North and Bit Digital, Inc. (Nasdaq: BTBT), are pleased to announce an additional 40MW hosting agreement for the expansion of Bit Digital’s bitcoin mining operations in North America, with an important sustainability feature. As part of the agreement, Bit Digital, one of the largest US-listed bitcoin miners by operating hash rate, will deploy an additional 13,000 ASIC miners at Compute North facilities in the United States. The move accelerates Bit Digital’s expansion strategy in North America, and highlights its focus on sustainability.

Compute North, an industry leader in economical, large-scale computing and cryptocurrency mining infrastructure, is responding to growing demand for sustainable solutions for the grid, rather than being a mere consumer of power. To enable intermittent supply from wind and solar, such sources must be balanced with intermittent energy demand. Cryptocurrency mining, which may be curtailed or taken offline in periods of low supply or peak demand, presents an ideal counterpart for renewables.

To activate this potential, Compute North has entered into demand response programs with its energy suppliers. Compute North’s load is fully interruptible 24×7, and may be rapidly curtailed to dispatch power to mission critical customers, such as hospitals. 

“Compute North serves an important role in providing low-cost computing for customers like Bit Digital, while filling an important need for our energy partners,” commented PJ Lee, co-founder and Chairman at Compute North. “The company’s pioneering TIER 0™ data center design creates cost efficiencies and the flexibility to throttle power demand at each facility as required, making it a critical partner to the overall stability of local power grids as they bring more renewables online.”

This type of strategy is exactly what Bit Digital was seeking in a hosting provider. While focused on rapid growth and shareholder value, the company also aims to play a leadership role in the transition to sustainable energy infrastructure. Bit Digital’s participation in Compute North’s demand response program gives the grid more flexibility to incorporate intermittent supply from wind and solar.

Bit Digital is focused on growing our mining operations, while selecting strategic partners that enable the transition to sustainable bitcoin mining,” said Bryan Bullett, CEO of Bit Digital. “On the energy supply side, we are evaluating new renewable sources to complement our existing renewables-based mining. On the demand side, we are embracing demand response programs like Compute North’s. We refer to this as “Mining 2.0″ – a multi-pronged strategy to activate our ability to dynamically manage power usage, both to manage costs, and to accelerate adoption of renewable energy sources for mining, and for the grid generally.”

Bit Digital’s next phase of hardware deployment with Compute North has already begun, and is expected to be completed this summer.

Find out more at Bit Digital 

 

Press Releases

 

In the News

 

Bit by Bit

Here’s the TL;DR version of this whole thing; if you wanted to buy one bitcoin, it would cost you $40.9K. Bit Digital’s Q1 2021 gross margin was around 72% before depreciation and amortization expense, and they stand to earn over 4 thousand bitcoins this year alone. The math speaks for itself. 

Bit Digital is intelligently acquiring thousands of miners to maximize their hash rate, and selling just enough of their Bitcoin holdings to pay for operation costs. It may not be long before this undervalued mining gem is trading at a market value commensurate with their peers, so don’t wait around if you want a bit of Bit Digital. 

 

Management

Bryan Bullett

Chief Executive Officer

From August 2016 to June 2019, Mr. Bullett served as Executive Vice President for US affiliates of the company now known as E&P Financial Group. From August 2012 to July 2016, Mr. Bullett served as a Senior Vice President at FBR & Co. During 2011 and 2012, Mr. Bullett served as a Vice President at Keefe, Bruyette & Woods. During the years 2006 through 2010, Mr. Bullett served as a Vice President and as an Associate at Bank of America Merrill Lynch (formerly Banc of America Securities). During the years 2004 through 2006, Mr. Bullett served as an Associate at Deutsche Bank Securities. Prior thereto, Mr. Bullett served as an early or founding employee of several technology and/or media-related startup companies. Mr. Bullett received a bachelor’s degree from Brown University and an MBA from Columbia Business School and holds Series 7 and Series 63 licenses.

 

Erke Huang

Chief Financial Officer and Director

Co-Founder and advisor of Long Soar Technology Limited since August 2019 Founder and CEO of Bitotem Investment Limited since May 2018 Investment Manager of Guojin Capital from June 2016 to May 2018 Engineering Analyst of Crowncastle International from March 2013 to November 2014 Master’s degree in Civil & Environmental Engineering from Carnegie Mellon University Bachler’s degree in Environmental Engineering from Southwest Jiaotong University.

 

Sam Tabar

Chief Strategy Officer

Mr. Tabar served as the Co-Founder and Chief Strategy Officer of Fluidity from April 2017 to June 2020. Prior to this, he held the title of Partner at FullCycle Fund which he served from December 2015 to April 2017. Prior thereto, he served as Director and Head of Capital Strategy (Asia Pacific Region) for Bank of America Merrill Lynch from February 2010 to April 2011. Prior to this, he was Co-Head of Marketing at Sparx Group from January 2004 to 2010. Prior thereto, he was an associate at Skadden, Arps, Meagher, Flom LLP & Affiliates from September 2001 to January 2004. Mr. Tabar received his Bachelor of Arts from Oxford University in 2000, and received his Master of Law (LL.M.) from Columbia University School of Law in 2001. He was associate editor of the Columbia Law Business Law Journal in 2000, and is a current member of the New York State Bar Association.

 

Brock Pierce

Advisor

Brock Pierce is an entrepreneur, artist, venture capitalist, and philanthropist with an extensive track record of founding, advising and investing in disruptive businesses. He’s credited with pioneering the market for digital assets and has raised more than $5B for companies he has founded. Pierce is Chairman of the Bitcoin Foundation and the co-founder of EOS Alliance, Block.one, Blockchain Capital, Tether, and Mastercoin (first ICO). Piece has been involved in Bitcoin mining since its genesis days, acquiring a significant portion of the first batch of Avalons and ran KNC’s China operation, one of the world’s first large scale mining operations. He was also a seed investor in BitFury through Blockchain Capital. He also established the largest Bitcoin mining operation in Washington State in the industry’s early days. Pierce has lectured at some of the nation’s most prestigious institutions, the Milken Institute Global Conference, International World Congress, and has been featured by the New York Times, Wall Street Journal and Fortune. Pierce was on the first-ever Forbes List for the “Richest People in Cryptocurrency” and was an Independent Party candidate for President of the United States in 2020.

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  • Name of Issuer & Ticker Symbol - Bit Digital (BTBT)
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  • Period of Campaign - 5/10/2021 - 5/10/2022
What securities of the Profiled Issuers do we hold? The positions we hold of the Profiled Issuer are set forth below. We plan to sell these securities during the Campaign.
  • Name of Issuer & Ticker Symbol - Bit Digital (BTBT)
  • Number of Shares We or our Affiliates Hold - 77,519
  • Price We Paid Per Share - $0
  • Date Issued - 4/21/2021

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