Why Debt Financing Might Be a Double-Edged Sword for Bitfarms

Industrial-scale bitcoin mining is an especially capital-intensive enterprise. Debt financing might be a gorgeous means for elevating the funds wanted to buy tools with out diluting possession by way of fairness financing. However the mining business is unstable and loans typically characteristic excessive rates of interest and strict collateral necessities, making it a double-edged sword for people who wish to broaden. Living proof: Canadian bitcoin miner, Bitfarms.

CoinDesk Analysis presents an in-depth look into Bitfarms. With over 29,000 ASIC miners unfold throughout 5 services, Bitfarms is without doubt one of the largest bitcoin mining firms in Canada. All through 2019, the corporate has shortly grown its general hashrate, which was financed primarily by way of a $20 million mortgage by way of Dominion Capital. On this report, we look at Bitfarms’ monetary place and consider its means to pay down debt coming due in 2021.

At its core, Bitfarms operates first rate tools at a decent value of electrical energy, leading to optimistic working money flows.

Nonetheless, the corporate used high-interest-rate debt with massive balloon funds to develop broaden operations. Now, with over $20 million in monetary obligations coming due by the tip of 2021 coupled with declining income output per terahash, Bitfarms might wrestle to repay its debt.

Assuming there’s no vital leap in bitcoin costs, the Toronto-based Bitfarms will possible have to broaden operations with environment friendly mining tools inside the subsequent 12 months, which would require the corporate to boost extra capital.

An inventory of covenants and restrictions from its current mortgage, nonetheless, hampers the corporate’s means to boost capital by way of each fairness and debt, leaving Bitfarms with only a few choices.