Disclaimer: The opinion expressed here is not investment advice – it is provided for informational purposes only. It does not necessarily reflect the opinion of BitMaden. Every investment and all trading involves risk, so you should always perform your own research prior to making decisions. We do not recommend investing money you cannot afford to lose.

Comparing Bitcoin and Ethereum ETF Flows: Bitcoin Witnesses Significant Outflows, While Ethereum Gains Impressive Inflows – Dec 27, 2024

Bitcoin ETFs Experience -$287.9M Outflows While Ethereum ETFs See $47.7M Inflows on 27th Dec 2024 ————— ????Coin: Bitcoin ( $BTC ) $94,554.90 Ethereum ( $ETH ) $3,347.54 ————— NFA. ZyCrypto

---

Cipher Mining: Capitalizing On Bitcoin, AI, And HPC Trends (Upgrade)

Summary Cipher Mining Inc. is expanding its Bitcoin mining and HPC infrastructure, targeting 23.5 EH/s by 2025, leveraging low-cost energy and operational efficiencies. CIFR`s strategic growth includes significant capacity increases in Texas, with new facilities like Black Pearl and Stingray, enhancing mining efficiency and computational power. Despite cash burn concerns, CIFR`s low production costs and high gross margins position it well to capitalize on the ongoing cryptocurrency bull market. I upgrade CIFR to a "Buy" due to its growth potential in Bitcoin, AI, and HPC markets, though investors should expect high volatility. Cipher Mining Inc. ( CIFR ) is currently working towards strengthening its positioning among Bitcoin ( BTC-USD ) mining and high-performance computing [HPC] infrastructure. To this end, CIFR focuses on obtaining low-cost energy and operational efficiencies as it builds its data center capacity. CIFR’s growing mining fleet is also adapting to the challenges of the 2024 Bitcoin halving and potentially volatile market conditions. So far, CIFR’s operations have increased with the acquisition and development of new facilities. Its target is to reach 23.5 EH/s by the end of 2025. Similarly, the company believes its business is also a good fit for the emerging AI and HPC market trends. For instance, Meta ( META ) and Nvidia ( NVDA ) use CIFR’s infrastructure. So I lean bullish on CIFR’s as it has a low-cost production model backed by secular tailwinds with high Bitcoin prices. More than a Miner: Business Overview Cipher Mining Inc. is a technology and infrastructure company that develops and operates data centers designed for Bitcoin mining. It also uses excedent energy monetization by providing infrastructure for Artificial Intelligence [AI] and High-Performance Computing [HPC] tasks. Source: Corporate Presentation. October 31, 2024. Since my previous analysis , CIFR has made surprising progress as it scaled its operations ahead of the 2024 Bitcoin [BTC] halving. This is why CIFR is now able to reap the rewards from those strategic decisions, as Bitcoin mining rewards are now cut by half, which typically heralds a secular bull market in cryptocurrencies. Texas Play: Strategic Growth Moreover, CIFR successfully increased its capacity by 300 MW with its 70-acre Black Pearl facility in Texas. This will essentially increase the efficiency and hash rate it uses to provide its mining and computing services. CIFR’s goal is to reach a production of 23.5 exahash per second [EH/s] by the end of 2025, which would basically make CIFR a leader in its industry. Thus, CIFR’s Black Pearl site’s production will contribute to this goal by enabling more mining rigs and boosting the computational power rate. The data center at the Black Pearl site is under construction and scheduled to be operational in Q2 2025. Source: Corporate Presentation. October 31, 2024. Additionally, on November 26, 2024, CIFR announced the acquisition of another 250-acre site in Stingray, West Texas. As you may have noticed, Texas is a sector with low-cost energy resources, which is ideal for CIFR’s business model. The company disclosed it paid $4.1 million upfront and signed the agreement to a variable fee of $1.5 per megawatt-hour [MWh] for five years after the site started operations. The variable cost is linked to the amount of energy CIFR’s installation consumes from the grid. After all, this site is directly connected to the main power grid with an agreement with ONCOR that will be fully supplied by 1H2026. Mining Efficiency and Future Expansion Furthermore, on December 03, 2024, the company recently disclosed that 202 Bitcoins were mined in November. This included 30 Bitcoins mined at joint venture data centers and 13 Bitcoins from excess electricity monetized at $96,542 per Bitcoin. In other words, in that single month, it generated roughly $19.5 million in revenues, which implies an impressive annual revenue run rate of $234.0 million. However, CIFR actually sold 234 Bitcoin to manage its liquidity and still held another 1,383 Bitcoin in its treasury. In fact, it has 258 Bitcoin as collateral to ensure its financial operations. Additionally, CIFR has 76,000 mining rigs deployed, with 12.0 EH/s, which is close to their year-end 2024 target of 13.5 EH/s for bitcoin mining. Likewise, its fleet’s efficiency (energy consumption per terahash) was 20.8 joules per terahash [J/TH], slightly less than the projected value of 18.9 J/TH. So, while CIFR seems to have come in slightly below its internal projections, it’s still benefiting immensely from the ongoing bull market in Bitcoin. Source: Corporate Presentation. October 31, 2024. It’s also worth mentioning that CIFR’s Odessa site has upgrades that should be ready by year-end 2024. If they materialize, it could place its operations among the industry’s most efficient mining fleets. This matters because, together with the Black Pearl site, the new Stingray facility, and a total of 11 sites, CIFR would reach a total power pipeline of 2.6 GW by 2027. Bitcoin and HPC Markets Currently, the Bitcoin mining industry reported record-low hash prices in Q3 2024, which translated into reduced revenues. However, CIFR mitigated these headwinds with its low-cost units, which are as low as $0.027/kWH. This means that in 2024, the company achieved an all-in cost of production for one Bitcoin of approximately $18,162. This production cost implies an extraordinarily favorable ROIC, as Bitcoin trades multiple times higher than that. Note that these costs already include energy, grid fees, and other energy-linked expenses. Moreover, CIFR’s Odessa has the lowest electricity cost per Bitcoin, approximately $17,561. This facility is the company’s primary production hub and contributes around 83% of its Bitcoin mining operations. The rest of its mining comes from joint venture facilities with higher costs than Odessa, with a mean cost per Bitcoin of $22,928. Source: Corporate Presentation. October 31, 2024. CIFR is currently among the leading Bitcoin miners in terms of Bitcoin production costs. For comparison, miners such as the giant Marathon Digital Holdings ( MARA ) had an average electricity cost of $22,000 to $24,000 per BTC. Riot Platforms ( RIOT ) had a power-related cost average of around $26,000 . However, RIO has higher than CIFR’s mining costs, averaging approximately $20,000 per BTC. Hut 8 Mining ( HUT ) is closer to CIFR because it also aims to be a diversified company that offers HPC workloads. But again, HUT’s costs are around $31,482 per Bitcoin mined as of Q3 2024. Moreover, in hash rate terms, CIFR’s target of 35 EH/s with fleet efficiency of 15 J/TH by year-end 2025 would only strengthen its cost advantage due to low energy costs and operational efficiency. Source: Corporate Presentation. October 31, 2024. According to its latest earnings call , the company plans on expanding its capacity to 927 MW in 2025. For this, it’ll increase by 866 MW with new facilities, like the Black Pearl, as it becomes operational. The increase in capacity from 327 MW in 2024 to 927 MW in 2025 is part of the company’s strategy to grow and produce Bitcoins as efficiently as possible. Furthermore, CIFR is leveraging its large sites, fast energization, and the use of its data centers by major companies like McKinsey, Meta, and Nvidia. In fact, the company believes it can become a key player in the HPC and AI markets. This is why CIFR is actually well-positioned to capitalize on the current power scarcity and support computing loads for these types of corporate tasks. In a way, CIFR’s mining operations give it a unique set of competitive advantages to fulfill those requirements. Diversification with AI and HPC is key because it’ll transform CIFR from a pure-miner play closer to a general computing firm. Mining is highly profitable during a bull market, but AI and HPC are much more stable with recurring revenue streams, which lowers CIFR’s exposure to Bitcoin’s cyclicality. You see, most of CIFR’s data centers, like the Odessa site, have Application-Specific Integrated Circuit [ASIC] mining rigs designed for cryptocurrency mining. However, the newer projects like the Black Pearl and Stingray facilities are developed to support dual purposes including Bitcoin mining and colocation agreements for AI and HPC tenants. Source: CME. These tenants use GPUs and other specialized equipment requiring specific cooling systems, high bandwidth, and redundant power supplies. The company plans to integrate its AI and HPC capacities into its broader 2.6 GW total power potential by 2027, which indicates an emphasis on the new focus of its portfolio. But it also shows its business will be much more flexible going forward. For instance, industry data suggests AI inference workloads can generate $7 in revenue for every $1 spent on GPU over four years. This is likely significantly higher than Bitcoin mining’s ROI during a bear market. So, dedicating a fraction of its capacity to HPC tasks lets CIFR tap into that growing global AI market . Computing demand from that sector is forecasted to grow at a CAGR of 37% from 2024 to 2030. It’s also worth highlighting that on December 16, 2024, Bitcoin hit a record-high price of $106,449. For instance, the US elections were a positive catalyst for the price of Bitcoin because President Trump has repeatedly signaled a favorable stance towards this industry. Also, the Fed is on a rate-cutting cycle , which should act as an additional tailwind for asset prices as well. The CME rate probability tool suggests there’s an 82.7% aggregate probability of lower rates by December 2025. In my opinion this will give a macro environment for CIFR’s business. Relatively Cheap: Valuation Analysis From a valuation perspective, CIFR trades at a $1.9 billion market cap. This means the company is no longer a microcap, but I also believe there’s still more room to grow as long as the cryptocurrency secular bull market continues. As of Q3 2024, CIFR’s balance sheet held $25.3 million in cash and short-term investments against no financial debt other than typical operating liabilities. I also see its balance sheet also has $95.5 million worth of Bitcoin. Its equity book value reached $672.0 million, suggesting a P/B of 2.3. This actually appears reasonable compared to its sector’s median P/B of 3.5. Source: Seeking Alpha. According to Seeking Alpha’s dashboard on CIFR, CIFR is projected to generate $301.1 million in revenues by 2025. Naturally, we need to take these projects with a grain of salt because they rely substantially on the price of Bitcoin. As long as the current cryptocurrency bull market continues, it should be a realistic projection, but I believe its long-term revenue growth will be highly volatile because the underlying commodity is highly erratic as well. Investment Caveats and Risk Analysis Nonetheless, $301.1 million in future revenues implies a forward P/S of 6.3. This is actually slightly higher than its sector’s median forward P/S of 3.3. Still, I believe the main metric to track is CIFR’s gross margins, which should capture its Bitcoin production cost relative to the price it realizes when monetizing it. Currently, CIFR’s gross margins stand at 62.3%, which is significantly higher than its sector’s gross margins of 51.0%. However, we can’t ignore that if CIFR’s infrastructure expansion somehow leads to higher production costs, it could hit substantially its margins. Similarly, if the price of Bitcoin declines substantially, it could lead to equally large shareholder losses. Investors need to fully understand that, for now, CIFR remains largely a derivative on the price of Bitcoin itself. In the long run, CIFR’s operations might diversify more into other areas like AI and HPC computing, but for now, it’s still largely a miner and nothing more. As with other mining companies, as long as the underlying commodity rallies, the stock will likely follow as well. But the inverse is also true, so new investors need to understand this is a highly cyclical security by nature. Source: CIFR’s latest 10-Q. Another potential red flag is that CIFR’s cash burn remains persistent despite its secular tailwinds. I estimate CIFR’s trailing nine-month cash burn reached $224.5 million by adding its CFOs and Net CAPEX. This figure includes its intangible asset purchases and Bitcoin sales. Clearly, CIFR has made substantial CAPEX investments expecting to monetize them into 2025, but if the price of Bitcoin declines, it could also lead to massive losses for investors. Source: TradingView. Nevertheless, on balance, I believe it’s fair to lean bullish on CIFR, as it’s focused on growing its operations to capitalize on a multitude of highly promising secular trends (Bitcoin, AI, HPC computing). Hence, I feel it’s fair to upgrade CIFR to a “Buy” for investors who understand this will be a volatile security. “Buy” Upgrade: Conclusion Overall, I believe CIFR has outpaced my initial expectations, which is why I feel it deserves a rating upgrade. In particular, I like its pivot towards potentially diversifying its business in the long run with AI and HPC computing. Also, as long as the ongoing cryptocurrency bull market persists, the company seems well-positioned to continue creating shareholder value. I do have some cash burn concerns, but if Bitcoin rallies more into 2025, then I anticipate CIFR will generate substantial revenues that will allow it to recoup its 2024 CAPEX. Thus, I rate CIFR a “Buy” for investors who understand this is a highly cyclical and volatile stock closely linked to the price of Bitcoin itself. ZyCrypto