Bit Digital Stock: Is It Better To Buy Bitcoin Instead? (BTBT)


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Digital bit (NASDAQ: BTBT) is a well-known Bitcoin mining company with operations in the United States and Canada.

Digital bitmap

Digital Bit

In February 2020, they started their first bitcoin mining operation and shareholders will be the first to say so. it’s been a wild ride ever since. Bitcoin miners like Bit Digital use special hardware to produce bitcoins, a cryptocurrency. Like regular mining companies, they store resources and try to sell them at bargain prices. For this reason, they often trade as cryptocurrencies with steroids. But recently, the crypto market has been experiencing a certain crisis. Today we will discuss that crisis and what it means for Bit Digital shareholders.

Before you begin, if you want definitions of some critical terms related to cryptocurrency, check out the Crypto Cheat Sheet in my Riot Blockchain (RIOT) article. But of course, cryptographic veterans should not hesitate to skip this section.

Stellar year verified by bad cryptographic prices

The company reported its annual accounts; Revenue for the full year of 2021 was $ 96.1 million, up 355%, which allowed it to extract 2,065 bitcoins compared to $ 1,510 in 2020. Net income was $ 4.9 million and EPS was $ 0 million. .08 dollars compared to a loss of 0.06 dollars in the previous year. The mass sale of cryptocurrencies is expected to significantly threaten profitability this year if Bitcoin prices remain around $ 19,750.

Bit Digital has approximately $ 42 million in debt-free cash. In its May 2022 update, the company’s holdings in BTC (BTC-USD) and ETH (ETH-USD) were 793.6 and 316.1, representing a fair market value of approximately $ 25.2 million. dollars and $ 0.6 million for the two tokens at that time. At current prices, less than a month later, the shares would amount to about $ 16 million, which speaks to the catastrophic decline we see in the cryptocurrency market. The combined value of the treasury shares represents approximately 14% of the company’s $ 114.16 million market capitalization. At last year’s highs, tokens would be worth about 48% of the current market capitalization. It is also important to note that the company extracted almost 200 Bitcoins in the first quarter and the treasury shares stood at 802 in December 2021, which means that they were being sold, hopefully at advantageous prices.

Outlook

As you can imagine, this stellar drop has implications for PS figures in the future. We observed the compression of PS figures across the industry.

Graph
Data by YCharts

Investors are now paying less than a dollar for every dollar of the company’s revenue, which is quite reasonable considering that the liquidation erodes the value of the treasury shares.

Bit Digital was unlucky. They did the right thing by acquiring a large mining fleet, but due to factors beyond their control (discussed here), they faced notable disruptions in their operation that delayed them for months, only to now face a bearish crypto market. If the company were at its optimum level, it would have benefited from significantly more attractive cryptographic valuations and would probably have a much stronger 2021.

Things can get even worse for the company. The company has production costs for BTC in the area of ​​$ 7771, and further downward pressure on BTC could put a lot of pressure on the company.

Graph
Data by YCharts

The company also faces challenges with Ethereum.

Merger of Ethereum 2.0

The decision to merge Ethereum’s Mainnet with the Beacon chain will involve moving from the job test to the participation test. This would almost eliminate the dependence of the miners. This may adversely affect the Ethereum mining industry. This is discussed in more detail here. The good thing is that the Ethereum business is a small part of the Bit Digital business, so the impact should be minimal. It’s also important to note that cryptographic fusion is unlikely to hurt only Ethereum prices, but the token is in the middle of a mass sale and has dropped more than 75% at the time of writing.

Graph
Data by YCharts

This is part of the broader selling pressure across the crypto market due to macroeconomic headwinds.

On a positive note, the company is operating with a fraction of its fleet deployed, so we could see better production figures during the second half of the calendar year 2022. The company thinks it can reach 5.3 EH / s, which would be a huge increase that is quite consistent with the aggressive hashrate growth approach taken by the major players in the industry.

Hash rate growth

Digital bit

Next earnings report

This report should be painful for shareholders. Bitcoin and Ethereum are both in free fall and the company is already facing challenges with fleet deployment. We can see that there is a general expectation that revenue will decline over the next quarter compared to the fourth quarter of 2021.

Revenue forecasts

Looking for Alpha

Revenue is expected to be around $ 10 million for the quarter. I think it’s pretty generous unless there’s a strong cryptocurrency settlement. With the recent liquidation in the crypto markets, I wouldn’t be surprised to find that Bit Digital is keeping its tokens and using its strong cash balance to fund transactions as it tries to weather the storm. Other crypto companies have been exploring funding options with the option of stock offers being off the table due to low valuations. This is not ideal, but it is acceptable. The main thing that investors should focus on is the redistribution of the fleet. That would be very unlikely. With less than half of the fleet deployed in the last upgrade, the highest priority has to be the fleet count. I still wouldn’t expect any suggestions for forced liquidation of cryptocurrencies, as the company has done an excellent job managing cash balances in the past. I also expect an increase in the direct costs of bitcoin production, with which the cost of energy increases throughout the industry. Many mining companies have agreements that help stabilize these costs, so I wouldn’t expect a sensational increase. I would expect the company to need 2 to 3 quarters to solve the fleet problem completely, but it is possible that a lot of pain already has a price in stock.

Graph
Data by YCharts

I expect Bitcoin production to be around 600 to 800 tokens year-round by 2022, and production to increase during the second half of 2022. I expect Ethereum to continue to be a revenue contributor in part, with production ranging from 300 to 550 the year.

Prospective analysis and commentary

Bitcoin is the main product of Bit Digital, which simplifies the analysis. The company produced approximately 194 BTC in the first quarter of 2022, with less than 50% of its fleet deployed. In the May update, production dropped to 53.4 Bitcoins, a 30% decrease. The company is redistributing its fleet and it is unclear how much improvement investors can reasonably expect with rising distress rates. As our guide for the worst case scenario, we will take 1200 BTC by 2021. At best (most unlikely), we will take 1800 BTC. I hope the actual number between the base and the worst case. For BTC prices, we will take $ 12K as the worst case, the current price and $ 45K as the best. The approximate revenue estimates for the different cases are shown below.

Cases Bitcoin price
Bitcoin production Low Base (current) The best
$ 12,000.00 $ 19,750.00 $ 45,000.00
1200 $ 14,400,000.00 $ 23,700,000.00 $ 54,000,000.00
1800 $ 21,600,000.00 $ 35,550,000.00 $ 81,000,000.00
2200 $ 26,400,000.00 $ 43,450,000.00 $ 99,000,000.00

Source: Author’s estimates

For Ethereum, we will use $ 1000, $ 1500, and $ 3000 with the production levels shown below. Estimates include treasury holdings.

Cases Ethereum price
Ethereum production Low Base (current) The best
$ 1,000.00 $ 1,500.00 $ 3,000.00
300 $ 300,000.00 $ 450,000.00 $ 900,000.00
420 $ 420,000.00 $ 630,000.00 $ 1,260,000.00
550 $ 550,000.00 $ 825,000.00 $ 1,650,000.00

Source: Author’s estimates

We will use a P / S ratio due to variable income. If we apply the current ratio of 0.85, we get the following prices as targets:

P / S 0.85 Expected price
Cases Bitcoin price
Bitcoin production Low Base (current) The best
1200 $ 0.16 $ 0.26 $ 0.58
1800 $ 0.23 $ 0.38 $ 0.87
2200 $ 0.28 $ 0.47 $ 1.06

Source: Author’s estimates

This is consistent with the projected decline in revenue. I didn’t count on an increase in Bitcoin production as the fleet is fully deployed due to the time the fleet has been affected. It is important to note that this means that the P / S ratio remains compressed. As price action improves, the multiple should begin to expand again. If the P / S multiples can return to 5 and double their production during the second half of 2022, this is the story:

P / S 5 Expected price
Cases Bitcoin price
Bitcoin production Low Base (current) The best
1600 $ 1.21 $ 1.99 $ 4.53
2200 $ 1.67 $ 2.74 $ 6.24
2600 $ 1.97 $ 3.25 $ 7.38

Source: Author’s estimates

O Takeaway

It is probably best for cryptographic bulls to pay attention to the actual chips at this point. Bit Digital’s leadership team is doing everything right, but they can’t control the prices of cryptocurrencies. The company has a large amount of cash on its balance sheet and should be able to overcome a one-year recession comfortably, but in the medium term, there is not much to be excited about. Investors are likely to be patient with purchases until the situation with cryptocurrencies is clarified.



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