Bitfarms: A World-Class Bitcoin Mining Company with Growth Challenges

Small Caps 4 replies 0 votes 2335 views Tags:  Bitcoin miningBitfarmsCLSKDelisting risksExpansion strategyFinancial commitmentsHODL policyMARAMining capacityMining costMining difficultyMining efficiencyPotential upsidePrice targetsRIOTUndervalued

Bitfarms has been quite nostalgic for us, as we successfully predicted its rally from $4 to $9 in the past and even made some profitable trades. Good times, right?

Now, let's dive into the present. Bitfarms has recently made some strategic changes. They shifted from being 100% powered by renewable energy to a partially renewable-powered setup. Additionally, they adjusted their HODL (hold on for dear life) policy, which means they started liquidating some of their self-mined Bitcoins to improve liquidity and strengthen their balance sheet.

Despite these changes, Bitfarms has managed to maintain its world-class mining operation, especially when it comes to efficiency. They have been able to survive and even become leaner in the process, although it's debatable whether this is a good thing or not.

We should also mention that Bitfarms is currently trading below book value, which suggests that it might be undervalued. In fact, if Bitcoin recovers past certain price points, say $69,000 or $100,000, Bitfarms has the potential for an 85% to 260% upside.

However, it's not all sunshine and rainbows for Bitfarms. There are some risks to consider. One of the main concerns is the possibility of delisting from Nasdaq. They received a notification for not meeting the minimum bid price listing requirement in the past, and although Bitcoin's recovery helped them stay above the $1 threshold, they are still trading near that level. Any further dilution of shares could devalue the stock.

Another issue is the funding for expansion. Bitfarms' self-mined Bitcoins alone might not be enough to cover all the costs associated with growing their operations. They might need to resort to raising funds through equity or liability, which could undo their efforts to become more de-leveraged.

Moreover, Bitfarms has faced challenges in expanding their mining capacity. While they initially aimed for a certain capacity by the end of 2022, they had to revise their targets multiple times due to various setbacks. The mining difficulty has also been a factor, as competitors seem to be growing faster than Bitfarms, leading to a decline in their Bitcoin production.

Considering these factors, we believe that Bitfarms is undervalued and has the potential for significant upside. However, there are several obstacles they need to overcome, including the aforementioned balance sheet constraints, mining difficulty, and slow capacity expansion. In addition, the risk of Nasdaq delisting looms over them if they don't address their Bitcoin production issues in a timely manner.

As an alternative, we recommend taking a look at CleanSpark (CLSK), which operates with a similar HODL strategy and is also trading below book value. They have a higher guided mining capacity, which could give them an advantage in capturing upsides during a Bitcoin bull market.

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