NEW YORK, July 15, 2021 /PRNewswire/ -- There is little debate that the crackdown on cryptocurrency mining in China has significantly disrupted the markets and dampened sentiment towards digital currencies. What is more open for discussion is the rationale undergirding Beijing's mandates to shutter the vast majority of its cryptocurrency miners, companies using warehouses of computers guzzling electricity to solve complicated math problems integral to the process of creating new coins and keeping the immutable digital ledger of transactions known as the blockchain. Ahead of the crackdown, 50-60% of all crypto mining activity transpired in China. A top producer of greenhouse gas emissions, Chinese provinces are under directives to slash pollution, for which crypto mining is a contributor. There is also speculation that the People's Bank of China wants to be the first developed nation with its own digital currency, which would mean it doesn't want to compete with Bitcoin. Regardless of the motivation, sweeping legislation has ordered miners out of the country, which will be a boon for the U.S. and Canadian cryptocurrency markets going forward. That's good news for companies such as ISW Holdings Inc. (OTC: ISWH) (Profile), which specializes in mining and portable, renewable-energy powered mining centers. Outside of the mining realm, the China-induced drip also provides an opportunity for companies that embrace, support and accept crypto, such as Overstock.com Inc. (NASDAQ: OSTK), PayPal Holdings Inc. (NASDAQ: PYPL), MicroStrategy Incorporated (NASDAQ: MSTR) and Coinbase Global Inc (NASDAQ: COIN).
- North America is forecast to become the largest cryptocurrency mining market following about 90% of China's mining capacity being eliminated.
- ISWH recently finalized a land lease development deal to move forward with the first phase of a planned 100-megawatt (MW) crypto mining project on a seven-acre parcel of land in Georgia.
- The first phase will include at least 20 MW installed across 20 of the latest iterations of Bit5ive's POD5 units, a development expected to generate $10 million in revenue annually.
- When at full capacity, the ISWH project is forecast to create $100+ million in revenue each year.
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China Hands North America Crypto-Mining Dominance
Interest in Bitcoin investment and mining has accelerated over the last decade. Understandably so, considering Bitcoin prices have climbed from $1 in April 2011 to $157 in 2015 to a high of $64,859 in April 2021. Currently, miners receive 6.25 Bitcoin for every new block that they mine. With that type of payout, competition has become fierce, as demonstrated by a spike in hashrate, the industry term for the total amount of global computing power mining Bitcoin. However, China's government orders caused a nosedive in hashrate, which recently hit a one-year low as miners in the country were forced to pull the plug on operations.
While non-Chinese miners hustle to capitalize on less competition, Chinese miners head to other countries and look to get back in the game. Almost certainly, hashrate will climb in the coming months as new mining centers are energized. China's mining capacity being cut by 90% is only transitory as miners relocate, including some experts predicting that North America will replace Asia as the largest crypto mining market.
ISW Holdings Inc. (OTC: ISWH) is a diversified holding company specializing in early-growth companies with a portfolio that includes renewable energy, spirits, a healthcare division focused on telemedicine, and a partnership with Bengala Technologies to develop new products for supply chain management. In 2020, ISW Holdings forged a joint venture with Bit5ive LLC, bringing digital currency and crypto-mining support services to ISWH's portfolio for the purpose of mining cryptocurrency with a net zero carbon impact. As it went, the timing was perfect against the backdrop of the Chinese exodus, mining opportunity and demand for green mining technologies.
Bit5ive is an official distribution partner of Bitmain, the industry-leading fabless manufacturer of computing chips and distributor of Antminers (a wildly popular cryptocurrency mining computer) to more than 30 countries in Latin America, Central America and the Caribbean. In addition to a portfolio of mining equipment and management services, Bit5ive has also developed and markets POD5 mining centers and Power Skid 2.5. Cumulatively, POD5 and Power Skid 2.5 offer miners the most efficient crypto-mining infrastructure available today.
Millions in Bitcoin Coming from PA
The JV between ISWH and Bit5ive was initiated in May 2020, and by December, the mining facility in western Pennsylvania was set in motion. The project, which includes Bit5ive technology and Bitmain Antminer s17 units, has been advanced in spite of unprecedented headwinds related to COVID-19 and booming demand for mining equipment. Hashing, or mining operations, are expected to start imminently, according to Bit5ive founder Robert Collazo, as final tweaks are made to optimize operations.
While every miner would surely like to see Bitcoin prices back up near their record high, the price of the crypto is not a deal breaker for mining operations at ISWH. According to ISWH president and chair Alonzo Pierce, management's analysis indicates that the Pennsylvania operations can run profitably even with Bitcoin down in the "low 20k's." Bitcoin currently is trading near a support level around $32,000, leaving plenty of headroom for net income.
The Bit5ive team has made adjustments to raise the hashrate at the Pennsylvania unit to 54,000 terahashes per second. At that rate, it is estimated that the facility will complete enough blocks to produce $500,000 monthly, or about $5.8 million on an annualized basis, in revenue. Collazo, a seasoned vet in the mining space, understands that mining requires constant refinements to maximize efficiency and hashrate, which Pierce says will translate proportionately to reducing operational expenses.
Hockey Stick Revenue Growth
On July 7, 2021, ISWH hit a milestone as it finalized a land-lease development agreement granting the company unabated use of seven acres of land in Georgia. The property was selected specifically because of its ideal setup for crypto mining, including access to energy resources necessary for ISWH to scale the project to more than 100 megawatts (MW) of mining capacity. During the first phase, ISWH intends to deploy about 20 MW of energy to power 20 of the newest generations of Bit5ive POD5 units.
Initially, the project is expected to generate $10 million in revenue per annum. In subsequent phases, the project will be scaled to more than 100 MW, which should qualify ISWH as a "top-five" crypto miner by volume, according to Pierce. At that point, annual revenue is forecast to top $100 million.
The ISWH chief says the mass departure from China has companies reaching out to his team. "We are already fielding calls from mining firms seeking a new home. We are now equipped to handle this at scale. We have the power!" exclaimed Pierce in the news release on the new land agreement.
The POD5 Advantage
Bit5ive is bringing mobility to its cutting-edge POD5 units, which upon a quick glance resemble a classic cargo container. Of course, the units are much more, including thermal management systems and customizable Bitmain computer configurations — all powered by renewable energy sources. Wrapped up in one neat package of high-strength steel, the units have additional benefits where other mining farms may not be able to compete, such as flexibility in installation location, ability to withstand harsh conditions and faster build out or relocation.
Originally developed four years ago, Bit5ive launched a third generation of its POD5 last year. ISWH's partner is on a mission to increase its POD5 operations more than 13-fold this year. The company intends to put 28,000 new miners into operations and add 100 new POD5s to its portfolio, up from eight in 2020, by the end of December 2021.
In a bid to increase revenue and profitability, ISWH and Bit5ive will be sharing their resources and processing power with a group of other miners. A crypto co-op of sorts, "mining pools" are growing in popularity where companies work collectively over a network, an emerging trend resulting from depreciating risk/reward profiles in mining. There are many strong pools to consider, including Bitmain's Antpool, said Collazo in a recent Waypoint Podcast, but the plan is absolutely to join a collective.
Consolidation Always an Opportunity
Only around for a decade or so, the cryptocurrency market is going to be volatile as it experiences growing pains. China may be down on Bitcoin for now, but the free capital markets have strongly embraced it, lending credence to the notion that crypto isn't going anywhere. Pullbacks are part of a healthy market and almost always treated as opportunities as a further vote of confidence for the future of the market.
Overstock.com Inc. (NASDAQ: OSTK) has undergone a massive surge in value since bottoming at $2.53 in March 2020 at the height of the coronavirus pandemic to around $100 today. The retailer not only benefited from the e-commerce boom during lockdowns but also from its long-running investment in blockchain and cryptocurrency technologies. OSTK CEO Jonathan Johnson has been a vocal advocate of these technologies, with Overstock a first mover in accepting cryptocurrency payments and launching Medici Ventures to support upstarts focused on blockchain advancements.
PayPal Holdings Inc. (NASDAQ: PYPL) has been another pioneer in cryptocurrency, launching services that allow its users to easily buy, sell, hold and transact with crypto. Through its platform, PayPal users can invest in Bitcoin, Ethereum, Bitcoin Cash and Litecoin. PYPL has also made it so users of its popular mobile wallet Venmo can buy and sell these cryptos. Retail investors flooded PayPal in November, reportedly buying up to 70% of all newly created Bitcoin as the coin was spiking from under $14,000 to near $20,000.
MicroStrategy Incorporated (NASDAQ: MSTR) is the largest independent, publicly traded business intelligence company. It is probably better known as one of the most aggressive buyers of Bitcoin in the world. In June, MicroStrategy bought approximately 13,005 more Bitcoins for approximately $489 million in cash at an average price of approximately $37,617 per bitcoin, inclusive of fees and expenses. As of June 21, 2021, MicroStrategy holds an aggregate of approximately 105,085 Bitcoins.
Coinbase Global Inc. (NASDAQ: COIN), a leading cryptocurrency exchange, went public via a direct listing in April 2021. The uptake of cryptocurrencies by retail investors is easily measured by Coinbase, which has seen its user base grow from 32 million in 2019 to 43 million in 2020 to 56 million in April. The company, which serves as a crypto wallet, happens to be the partner of Overstock.com to make cryptocurrency purchases possible for Overstock customers. During the first quarter of 2021, Coinbase reported $1.8 billion in revenue, up from $585 million in the previous quarter, and $771 million in net profit, up from $177 million in Q4 2020.
There's no doubt that China shook the crypto markets in recent months, and while the movement may rattle some companies and investors, it will be looked at as serendipitous by others that recognize cryptocurrencies are here to stay. Indeed there will be a shifting of the landscape as miners fly and boat towards North America, which will be one more market segment where investors can be looking for opportunities as the burgeoning markets evolve.
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