At least one cryptocurrency miner is feeling the impact of declining market sentiment and as a result has chosen to take some risk off the table. Bitfarms Ltd (TSX: BITF) this morning reported that it had taken steps to stabilize its finances amid a falling price of bitcoin and associated currencies.
The company has reduced its exposure to some degree of bitcoin price risk, choosing to reduce a bitcoin-backed credit facility it set up in December with Galaxy Digital Holdings (TSX: GLXY). The company reduced the outstanding debt related to the facility by one-third, reducing the loan from US$100 million to US$66.0 million.
The debt was reduced through the sale of 1,500 bitcoins, implying that the sale was made at around $22,666 per bitcoin. In contrast, the company purchased 1,000 bitcoins in January at a price of $43,237, a figure roughly equal to the amount mined by the company in the fourth quarter.
At the time of the bitcoin purchase announcement, CEO Emiliano Grodzki said, “Our business strategy at Bitfarms is to accumulate the most bitcoins at the lowest cost and in the shortest possible time for the benefit of our shareholders. . To this end, we continuously optimize our capital allocation. With BTC falling as mining hardware prices remain high, we seized the opportunity to move money into BTC.
Concluded on December 30, the debt bears interest at the rate of 10.75% per annum and has a term of barely six months. The debt is guaranteed by bitcoin at a rate of 143% of the sums borrowed. Additional collateral is required if the value of the pledged bitcoin falls below 133% of the total amount borrowed.
Put simply, with US$100.0 million outstanding as of March 31 under the credit facility, Bitfarms had a total of 3,064 bitcoins pledged for debt, which represents a ratio of approximately 139% at the time. end of the quarter. An additional 1,870 bitcoins were added to the company’s debt collateral when the financial results were released on May 16.
While the company sees the decision to reduce debt as a way to free up bitcoins that would be used as collateral, the more realistic response might instead simply be that the company had no more bitcoin available to deposit as collateral.
Based on the company’s most recent financial statements, the company had a total of 5,244 bitcoins on its balance sheet in some form as of March 31. Of this figure, 3,064 have already been posted as collateral under the Galaxy Credit Facility, leaving 2,180 bitcoins. as being free and clear.
Additionally, in April, the company mined 405 bitcoins and another 431 were mined in May. As of May 31, the company collectively had 6,075 bitcoins in its custody in one form or another. Before taking into account additional guarantees posted after the end of the quarter, this translates to 3,011 free and clear bitcoins.
Now consider that as of May 16, the company had to deposit an additional 1,870 bitcoins as collateral, reducing the amount available for collateral to just 1,140 bitcoins.
Bitcoin closed at $31,295 according to Bitstamp on May 15, the day before the financial statements were filed. Yesterday it closed at $20,382.
If a portion of the credit facility had not been repaid by June 15, based on current prices, the company would be required to have approximately 7,015 bitcoins as collateral based on the last closing price of bitcoin. A figure that the company simply does not have, even taking into account the recently mined bitcoin.
Currently, with $66.0 million outstanding on the facility, approximately 4,630 bitcoins are required for collateral (based on 143% of the value of the debt to be held as collateral) – meaning the company is probably about to be overtaken despite having reduced debt significantly. After selling 1,500 bitcoins to cover the $34.0 million debt settlement, Bitfarms likely has around 4,811 bitcoins, assuming production remained at 13.9 bitcoins per day throughout June .
In total, this leaves around 181 bitcoins unencumbered, despite the decision to reduce bitcoin-backed debt by 34%.
The credit facility, which has a maturity date of June 30, is currently being renegotiated with Galaxy Digital to extend the maturity date. However, without changes to the collateral requirements, if the price of bitcoin continues to weaken, Bitfarms may have no choice but to settle more of the debt through the sale of its bitcoin holdings.
Information for this briefing was found via Edgar and the companies mentioned. The author has no security or affiliation related to this organization. Not a buy or sell recommendation. Always do additional research and consult a professional before purchasing a title. The author holds no license.
As founder of The deep dive, Jay focuses on all aspects of the business. This includes operations, as well as serving as lead writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay writes freelance for a number of companies and has been published on Stockhouse.com and Canna Investor Magazine among others.