Analyzing Bit Digital's (BTBT) Approach to Bitcoin Mining and HPC Diversification

Being the largest Bitcoin miner isn't feasible for every company, but excelling in specialized areas while maintaining profitability should be a key focus.

Bit Digital (BTBT) is navigating the post-halving era with a unique strategy, focusing on generating predictable revenue and expanding into high-margin sectors. While many miners are aggressively chasing hash rate expansion, Bit Digital is opting for a more balanced approach, aiming to become the next dark horse among Bitcoin mining stocks.

Analyzing Bit Digital's Approach to Bitcoin Mining and HPC Diversification

This guest post comes from Bitcoinminingstock.io, the one-stop hub for all things bitcoin mining stocks, educational tools, and industry insights. Originally published on Oct. 23, 2024, it was penned by Bitcoinminingstock.io author Cindy Feng.

Being the largest Bitcoin miner isn’t feasible for every company, but excelling in specialized areas while maintaining profitability should be a key focus. This philosophy underpins my primary reason for diving deep into Bit Digital (BTBT).

Prior to the halving, we saw many Bitcoin miners chase hash rate expansion aggressively and this trend has continued. Meanwhile, some miners are diversifying into the HPC (High-Performance Computing) and AI sector. Bit Digital first caught my attention during my analysis of public miners’ AI ventures. Unlike Core Scientific’s CoreWeave, which has attracted significant media attention, Bit Digital’s HPC business has been flying under the radar, yet it remains highly profitable. Their HPC revenue reached $12.497M, making up 43.17% of their total revenue – leading the AI charge among its peers.

With their recent acquisition of Enovum Data Centers and ongoing expansion in the AI space, Bit Digital is securing predictable revenue through long-term contracts. The shift in focus well positions the company to maintain profitability across Bitcoin market cycles.

A Deeper Look into Bit Digital's Operation

Bit Digital currently ranks #14 on our Bitcoin Mining Stocks by Market Cap list, boasting an active hash rate of 2.43 EH/s as of September 30, 2024. Its operational footprint includes data centers in the United States, Canada, and Iceland, with approximately 86% of its energy coming from carbon-free sources.

Bitcoin Mining Operations: Profitable but No Longer the Sole Focus

Bit Digital’s Bitcoin mining operation remains a core part of its business. According to Q2 2024 filings, mining revenue reached $16.079M, a 80.43% YoY increase driven by an improved Bitcoin price. Mining contributed 55.54% of their total revenue, a 43.07% decrease compared to the same period last year. The halving of Bitcoin block rewards in April 2024, along with increasing network difficulty, has significantly impacted profitability.

Bit Digital’s mining expansion strategy, according to CEO Sam Tabar, is “opportunistic, rather than growth at any cost”. This more cautious approach reflects the company’s focus on business diversification to limit exposure to Bitcoin’s volatility.

Ethereum Exposure: A Unique Differentiator

Bit Digital has significant Ethereum (ETH) holdings, an asset many other miners do not hold. Not only that, the company accumulates extra ETH by selling a portion of its mined Bitcoin and reinvesting it into Ethereum. As of September 30, 2024, Bit Digital holds 27,389 ETH, valued at approximately $71.3M.

With Ethereum’s consensus switch from Proof-of-Work (PoW) to Proof-of-Stake (PoS), Bit Digital's Ethereum exposure provides a unique yield opportunity. During Q2, 2024, the company generated 109.4 ETH in staking rewards. This gives investors of Bit Digital indirect exposure to both Bitcoin and Ethereum, offering a more diversified investment than a typical Bitcoin mining company.

The launch of the spot Ethereum ETFs in mid-2024 has made companies with ETH holdings more attractive to those who seek diversified exposure without holding crypto directly. With their ETH staking strategy, Bit Digital is theoretically an alternative to spot ETH ETFs for investors who want to generate yield from the asset. However, it is worth noting that Ethereum’s price can be as volatile as Bitcoin, and many seasoned Bitcoin investors do not believe in ETH’s long-term value.

HPC and AI: The New Growth Engine

Bit Digital’s strategic pivot into the HPC and AI sector, which started in late 2023, has proven highly profitable. Its AI business began earning revenue in January, with a three year contract for $150M. The company plans to subsequently upsize that by $42M per year. As of Q2 2024, HPC services contributed $12.5M in revenue, representing 43.17% of total company revenue. This is a massive (+54.3%) leap from Q1 202