Bitfarms (NASDAQ:BITF) is coming off a weak month, as production fell by almost 10 percent from August to September. Combined with the ongoing weakness of the price of Bitcoin (BTC-USD), it has kept the share price of BITF subdued, even as the market waits for the next CPI reading on October 13, 2022, at 8:30 EST.
As with all Bitcoin miners, BITF's share price has been moving in correlation to the decisions by the Federal Reserve in response to its interest rate hikes as it attempts to tame high inflation rates.
Barring an unknown Black Swan event, my opinion is we're probably going to see inflation start to fall through the end of 2022, preparing the way for market sentiment to improve, which will attract more money into riskier asset classes like Bitcoin, driving up the share price of BITF.
In this article, look at the impact of the Federal Reserve on the company, how the next few months are most likely to play out, and how BITF is positioning itself for the eventual rebound in the price of Bitcoin.
Concerning the latest production numbers for BITF, September was a disappointing month, as production fell by almost 10 percent, resulting in the company mining 481 Bitcoins during that time period.
The company attributed that to three things. September has 30 days, so it had one less day of production; it also had a short-term outage that had an impact on its mining; and last, higher network difficulty was a key factor.
While the short-term outage and a shorter month are temporary factors, the higher network difficulty is something to watch in the months ahead. Even so, the 481 Bitcoins mined was up 57 percent from the same period a year ago.
Management said it sold 544 BTC in September, generating $10.66 in revenue. The company also announced it sold some of its miners for $3.8 million. The stated purpose was to improve the efficiencies of its mining fleet.
As of September 30, BITF held 2,065 BTC in custody, which based upon the price Bitcoin is trading as I write, is worth $42 million.
The firm has been working on increasing its production capacity while diversifying geographically. BITF now has 10 mining facilities in four countries.
The latest facility it opened is in Rio Cuarto, Argentina. The 50 MW warehouse is the first of two, with the second warehouse already under construction. The initial facility started up at 10MW of capacity, which is expected to increase at 10MW intervals until it reaches full capacity by the end of 2022. After the added 10MW in capacity, it has brought overall capacity for the company to 176MW.
As a result, it increased BITF's hashrate from 3.9 exahash in August to 4.2 exahash in September. That's a significant improvement from the 1.5 exahash last year in the same period.
Based upon my thoughts concerning how effective the interest rate increases will have on inflation through the rest of 2022 and early 2023, BITF is positioning itself well for a sustainable rebound in the price of Bitcoin in 2023 and further out.
The response of the Federal Reserve to rising inflation has of course had a detrimental impact on most stocks, especially tech and high-growth stocks that are expected to have contracting margins and lower earnings as a result of more expensive capital.
Since Bitcoin and miners like BITF has been moving in correlation with high-growth tech stocks through 2022, it has brought about a major drop in its share price.
For that reason, the next two to three CPI readings are extremely important for how the company is going to perform over the next six months or so. If the readings show higher interest rates are starting to lower inflation, it's going to trigger more investors to pile into riskier stocks and asset classes like crypto.
While that will probably result in a big surge, I don't think it'll last until there are two or three months that inflation is confirmed to be falling. That said, I do believe the lows will be higher, and we would likely be in a stage of legitimate recovery. That would push the share price of BITF much higher than it is today.
On the other hand, if a Black Swan event were to happen and the price of Bitcoin collapsed to close to $10,000 or so, BITF would face not only performance difficulties, but could be under pressure from Nasdaq if its share price falls below the $1.00 mark. If that happened, it would probably result in a large exodus of shareholders, which could, at least temporarily, disproportionately affect its share price. How much of an impact it would be determined by the nature of the unforeseen event.
I bring this up because of the Bitcoin miners I'm invested in and/or follow, BITF, because of its low share price, is more susceptible to this happening than it peers.
As for inflation, if it remains stubborn but doesn't fall, BITF will probably remain in a period of consolidation until there is confirmation that inflation falling in response to the Fed's increase in interest rates.
I think September may have been an anomaly for BITF in regard to the near 10 percent drop in production. With the increase in production capacity, the next couple of months will give a clearer picture of where BITF stands in that regard. Any meaningful negative news on that front would be detrimental to the company, especially if the price of Bitcoin remains subdued.
All that said, the performance of BITF and its peers are directly correlated with the price movement of Bitcoin, and how Bitcoin goes so will go BITF. It's surprising how forgiving the market is when sentiment concerning Bitcoin turns bullish.
Again, the key for BITF through the remainder of 2022 and early into 2023 will be the CPI release. If things are shown to improve, high-growth assets are going to attract more investment, and BITF will benefit from that. On the other hand, if inflation remains stubborn and stagnates or even increases some, it will result in Bitcoin getting hammered again, putting downward pressure on the share price of BITF.
If that were to happen, I still wouldn't be too concerned about BITF for those holding for the long term. Inflation is going to start to fall eventually, and if inflation rates remain the primary catalyst for Bitcoin and growth stocks, it's only a matter of time before it and they start improving.
This article was written by
Disclosure: I/we have a beneficial long position in the shares of BITF either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.