Bitfarm (BITF.TO)

Hey everyone!

Here is my first stock thesis I am posting on this blog. I wanted to preface this post with the disclaimer that in no way am I suggesting you buy the stock because of this article. This analysis is my own, and I will share my personal convictions and reasons for wanting to invest in the stock.

Introduction

Bitfarm is a bitcoin mining company that has operations globally (Canada, USA, Paraguay, Argentina) that powers its miners using low-cost renewable energy sources. If you are reading this article I will go with the underlying assumption that you believe in the future viability of Bitcoin. If not, I suggest you skip past this blog as any thoughts or ideas I present will be meaningless for you. However, if you do believe in Bitcoin's future viability, I suggest you continue reading below.

To understand the company, we must first have a basis for the asset being mined. For the longest time, I have been opposed to Bitcoin as an alternative to fiat currencies. However, more recently (in 2023) I have closely tracked the price and have noted its resilience. The price of the asset has rebounded and continues to approach all-time highs seen in 2021. This resilience in the asset has driven me to research the asset more thoroughly where I ultimately determined its validity as an alternative currency. Later in 2023, I decided to buy a small amount of bitcoin at the price of 35,000 CAD. From this point, my investment has doubled. However, tax implications have driven me to find an alternative to investing directly in the asset. This brings me to my analysis of Bitfarm.

Bull Case (Bitfarm)

1. The company functions as a leveraged Bitcoin player. While the stock has not followed the asset completely, there is a notable correlation. Notice the price action of the stock compared to the price of Bitcoin over the past year.

Bitcoin Price

Bitfarm Stock Price

2. Bitfarms is a low-cost miner making them a profitable operation. They are considered to be one of the best cost/bitcoin miners in the industry. Even with the upcoming halving (where Bitcoin rewards are halved they can still maintain profitability at current prices.

*from their most recent investor presentation*

3.  Upgrading miners throughout 2024 at many of their sites to increase hash rate which will outpace halving.

*from their most recent investor presentation*

4. Have a proven track record of success (established in 2017. Older than many other miners). More importantly, the company has experienced a Bitcoin halving before. With the upcoming Bitcoin halving (estimated for late March) the company will be prepared to react to the market and challenges that come with these events.

Bullish Case (Bitcoin)

1. The upcoming halving will most likely affect the price of Bitcoin. While this isn't a certainty, we can look at the previous halving events to predict how the price of Bitcoin will react. While history doesn't predict the future, it often has a rhyme and reason. In previous Bitcoin cycles (from one halving to the next) the price of the asset has made all-time highs approximately 12 months after a halving. Currently, the price of Bitcoin hasn't even touched the previous all-time highs. While I am not one to try and predict the future price (I think it is relatively hard to do this and most methods are faulty) I can say that I think the price of Bitcoin will most likely reach previous all-time highs. This leads me to my second catalyst in point two.

Price of Bitcoin as related to halvings

2. Institutional ownership and widespread adoption. During the last upcycle of bitcoin most governments were caught off guard and didn't know how to respond to cryptocurrency ownership. Since then, these governments have widely instituted laws that have predominately favoured the adoption of Bitcoin as an investment. 

Map of where Bitcoin purchases are permitted

In addition to the pro-bitcoin policies put into legislation across the world, there has been the recent approval of various bitcoin ETFs in the USA. While the IPO of these funds could be considered lacklustre, I suggest it will have a lagging effect. Most importantly it allows the traditional investor to easily purchase the asset. 

Bear Case (Bitcoin/Bitfarm Stock)

1. Volalatily. Anyone who suggests Bitcoin is a non-volatile investment is either not capable of accessing the previous prices of the asset or is outright crazy. However, the greatest weakness of the asset might also be the greatest strength. The volatility should be recognized before taking the leap. The price of the investment can be a lot to stomach when it doesn't go our way. Best to set and forget.

Volatility of Bitcoin

2. Miner's might not follow the price of bitcoin through the having. Although the price of Bitcoin itself may increase, it doesn't necessarily mean that the price of miner stocks will automatically increase. Realistically the halving is only beneficial to miners if the price of Bitcoin increases enough to maintain the profitability of mining. However, we haven't ever experienced a bitcoin halving with such widespread adoption and this could have unpredictable effects on the price of miners.

Thesis

All in all, I am highly convicted and bullish on the stock. I have sold my holding of Bitcoin and opted to find an opportunity to buy Bitfarm instead (I know, this may be controversial for Bitcoin holders). I hope to gradually buy in with 10-20% of the funds in my stock portfolio. I will add during the next pullback in the price of Bitcoin and continue to do so where I see fit. I expect the price of the stock to reach new all-time highs during the end of 2024 and the beginning of 2025 as the price of Bitcoin rises during the remainder of 2024 and into 2025.

If you've made it this far good on you!

To my reader and future self,

Seth Adams