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Nov 30, 2021
[16 min Read]
Intro: When the $BSGA (Bitdeer) DA came out, there was little to no interest apart from this post, which provided some simple rationale for why it could be a good asymmetric bet. Even still, most regulars on r/SPACs didn't like it given that it's a crypto SPAC, doesn't have an investor presentation (yet), and has no PIPE. This was also my initial reaction, but out of curiosity I looked into it...and then I looked into it a lot more, and I've come to the realization that the current lack of info/investor presentation is a blessing in disguise for those who are willing to do some more digging.
With the lack of an investor presentation, it's hard to tell what is Bitdeer's total hash rate or MW capacity. For those that are new to crypto miners, these are common metrics used to value these companies as it directly corresponds to how much Bitcoin it can mine per second. There is some margin difference based on the efficiency of a miner's operations, but I'd expect Bitdeer to have industry leading margins given its close ties with Bitmain and long-standing operational experience (more on this later).
Disclosure/Disclaimer: I own a large position in BSGA commons as it now represents my highest conviction pick. However, none of this is financial advice, and I encourage you to do your own due diligence.
Overview of Bitdeer's Business:
Bitdeer was formerly the mining division of Bitmain and was spun off as a separate company earlier this year, resolving a long power struggle between Jihan Wu and Bitmain's other co-founder, Micree Zhan. For those new to crypto mining, Bitmain is the dominant supplier of bitcoin mining machines and is estimated to supply 80% of the market with customers like Core Scientific, Riot Blockchain, and Marathon Digital Holdings.
Bitdeer provides the opportunity to start mining crypto with a single click through its cloud service platform. This saves users from complicated processes, such as the procurement of mining equipment, the logistics of transport, power management, and the operation and maintenance of the mining farms. In addition, Bitdeer offers crypto mining construction, operation, procurement, and maintenance services to companies wanting to start large-scale mining operations.
Bitdeer has served users from over 200 countries and regions around the world with monthly traffic of over 3 million visitors. They have constructed over 30 mining datacenters and currently operate five of those datacenters for proprietary use (the remaining datacenters were constructed for partners/clients). Bitdeer offers support for mining over 10 cryptocurrencies and has plans to add more in the future.
Note: While the press releases/website doesn't talk about this, Bitdeer also most likely mines crypto for its own wallet holdings in addition to renting its crypto-mining capacity to users. This is similar to XPDI (Core Scientific) and RIOT.
Research on Bitdeer's Total MW Capacity:
In order to get a sense of the size and valuation of Bitdeer, the most straightforward approach would be to estimate how much MW capacity they have. A miner's total hash rate directly corresponds with the amount of power they have available, with potentially some slight differences depending on what generation of mining machines are being used. Starting with the crypto mining industry as a whole, we can see what the 2021E MW capacities look like for the majority of the publicly traded crypto miners on Slide 9 of Riot's Nov 17, 2021 Corporate Presentation.
And what is Bitdeer's total MW capacity? Jihan Wu, Bitdeer's founder and chairman, recently appeared on Anthony Pompliano's podcast and commented on this. Towards the end of the podcast, he talks about Bitdeer, and at 2:07:05 he discloses the following info: "Right now, we have around...1,000 MW in the United States and 400 MW in North Europe, and these numbers are going to double or triple in the next few years." That would be a total of 1,400 MW! For reference, $XPDI (Core Scientific) is projecting 512 MW by the end of 2021 and is valued at $4.3B EV at a $10 share price, but is currently trading at $13.04, which already appears to be undervalued in comparison to its peers. $BSGA (Bitdeer) is valued at $4B EV at a $10 share price and is currently trading at $10.24. Through this post, I'm trying to help r/SPACs be the first.
That being said, I want to take a more conservative approach and investigate if the 1,400MW that Bitdeer has right now refers to developed capacity or signed power agreements that have yet to be fully brought online.e
Starting with this article, published on May 27, 2021, Bitdeer was said to operate "a 50-megawatt crypto mining farm in Norway, to which it is adding a 300 MW farm currently under construction, and it runs a 200 MW farm in the U.S." So, at the time, that would be two farms with a total capacity of 250MW that were already online, with a third 300MW farm under construction in Norway.
Since then, a Houston news source recently reported that Bitdeer has a 700MW facility in Rocksdale, TX. This would be a fourth crypto farm. The article doesn't specify whether the 700MW facility is already fully online or not, but the article does say that neighbor Riot is in the process of finishing a 700MW facility in the same town. To be safe, let's assume that Bitdeer's 700MW facility has also not been fully constructed yet. Looking at Riot's progress from 50 MW on April 30, 2021 (Slide 4) to their latest 2021E projection of 350MW, we can estimate that they expect to have completed construction of 300 of the 700MW Rockdale facility by the end of 2021. From the timeline on their homepage, that seems to be their only expansion since May, so we can infer that the entire jump from 50MW to 350MW is due to their Rockdale location.
Thus, taking Riot's Rocksdale progress as a proxy, we can infer that Bitdeer has added on another 300MW from their own Rockdale location on top of their 250MW total reported on May 27. Following the same MW rate of progress in Norway as in the USA, we can make an assumption that Bitdeer has also added 300 MW of capacity from their 300MW Norway farm that was reported to be under construction in May. Altogether, T=that would be four mining farms with a total of 850 MW.
Another data point that can help our estimate is that the May article reported that Bitdeer only had 2 farms under operation at that time. In the recent BGSA/Bitdeer DA announcement, they state that "Bitdeer currently operates five proprietary mining datacenters in the United States and Norway." So far, our 850MW figure only accounts for four locations. If we assume that the fifth location adds 150 MW, which is relatively small compared to their other four locations, then that would make a total of 1,000MW.
As a rough check to see if 1,000-1,400MW is sensible, Core Scientific ($XPDI) has 150+ employees/512 MW and Bitdeer ($BSGA) has 300+ employees/TBC MW. This suggests that Bitdeer is at least two times the size of Core Scientific, and more if we consider economies of scale.
In conclusion, we can estimate Bitdeer to have a total capacity size of 1,000-1,400MW. This would make Bitdeer the largest crypto miner in the world by a factor of 2-3X (Core Scientific would be the 2nd largest with 512MW).
Other notable references:
This recent article says: "the mayor (of Rocksdale), whose son landed a full-time job with Bitdeer this year, shared a bit about the operation. According to King, Bitdeer is “expanding as fast as it can be built...King has already fielded close to 40 inquiries from mining companies keen to set up shop there, many of whom are Chinese miners." From this, we can confirm that Bitdeer has indeed been growing rapidly this year and even has a good relationship with the mayor of a town whose power capacity is so coveted by miners, which would bode well for their future expansion plans.
Speaking of their future expansion, in their press release, Bitdeer states that they expect to reach 3,000MW by the end of 2023. With our estimate of Bitdeer's total capacity to be 1,000MW-1,400MW, this fits with Jihan's statement that they will double or triple their capacity in the next few years (few typically refers to ~3). For reference, Core Scientific is targeting 1,031MW by the end of 2022, which was already higher than any other miner's projections.
Implications for Bitdeer's Stock Price:
From the table below, we can see BSGA's fair value would put the stock price much much higher using a MW capacity estimate range of 1,000-1,400MW.
$BSGA (Bitdeer)$XPDI$MARA$RIOT$HUT$HIVE$VCXA (Prime)Current Stock Price ($)$10.24$ 13.04$ 51.39$ 37.37$ 12.75$ 3.85$10.342021E Capacity (MW)1000-14005121053501448070Market Cap ($B)4.275.855.254.332.061.451.721Enterprise Value ($B)4.0965.7064.874.161.891.47$1.55Mkt Cap/MW ($M/MW)3.0511.4350.0012.3714.3118.1324.59
Note: one assumption I'm making is that BSGA (Bitdeer) and VCXA (Prime Blockchain) have the same amount of cash on its balance sheet as RIOT, so that I can more easily compare market caps/stock prices. None of the crypto miners have much or any cash on their balance sheet, so this assumption shouldn't change things much. For future reference, BTC's price was ~$57K at the time of this post.
Implied $BSGA (Bitdeer) prices based on peers' Mkt Cap/MW multiples using a 1,000-1,400MW range:
Based on $XPDI multiple: $27.43-$38.40
Based on $MARA multiple: $120.02-$168.03 (will ignore and assume this is an outlier)
Based on $RIOT multiple: $29.70-$41.57
Based on $HUT multiple: $34.34-$48.07
Based on $HIVE multiple: $43.51-$60.91
Based on $VCXA multiple: $59.01-$82.62 (will ignore assume this is an outlier, rumored $1.5B valuation has not been confirmed yet)
Taking the average multiples of XPDI, RIOT, HUT, and HIVE, this gives BSGA a trading price of $33.74-$47.24. However, it's currently at $10.24. Therefore, I think this is an outstanding opportunity to get in on what is appears to be by far the biggest crypto mining company in the world trading at a substantial discount compared to its peers.
Despite all this, I'd understand if this seems too good to be true. I've personally asked myself various questions on why this isn't as good as it seems to be. Here's a list of those questions along with possible answers that I've come up with:
Q: Isn't this a Chinese company and therefore, we should be concerned about this being a scam company?
Q: Wait, but wasn't this formerly part of Bitmain, which was a Chinese company?
A: Bitdeer indeed was part of Bitmain and essentially acted as their Core Scientific/MARA arm. Jihan Wu is the Chairman of Bitdeer and was one of the co-founders of Bitmain. In Jan 2021, Bitmain and Bitdeer split, with one co-founder taking over Bitmain and the other (Jihan Wu) taking over Bitdeer. While Bitmain is located in China, it is one of the most reputable and well-known crypto companies in the world. The fact that Bitdoor was once part of Bitmain and still has them as a strategic partner, is actually a big plus for Bitdeer, given the limited supply of Bitmain miners. I'll expand on this connection more later, along with Jihan Wu's success in the industry.
Q: Why does Bitdeer not have a PIPE? That means they couldn't attract investors, right?
A: We actually have precedence for a notable crypto company going public through SPAC without a PIPE: XPDI (Core Scientific). In XPDI's latest S4, it states that "the parties determined at that time not to proceed with the potential PIPE due to various factors, including the advantageous position that the combined company would be in relative to many SPACs due to both Core Scientific and Blockcap being cash flow positive." Basically, XPDI didn't really need additional funding due to being cash flow positive, and I'm quite sure the same is true for Bitdeer. If they really wanted more money, they could have at least gone with a bigger SPAC, but their choice of a small SPAC supports my thesis that they didn't want/need the extra funding.
I'll also note that one of Bitdeer's major VC investors is Sequoia Capital. Notable companies that Sequoia invested in early on include Apple, Google, Oracle, Youtube, Instagram, Zoom, WhatsApp, Linkedin, and Paypal. Sequoia's investment should give some added legitimacy to Bitdeer.
Q: Won't BSGA have a minimum cash condition that they are unlikely to meet due to high redemptions?
A: Firstly, so far, there have been 4**.**67M shares traded of BSGA since the DA announcement, and they have all been above NAV. With only 5.75M shares in the total float, that would indicate that redemptions probably won't be too high. But hypothetically if we assume that redemptions are very high, what would happen? We can't know for sure without an F4/S4 filing, but I suspect that they won't have a minimum cash condition. Again, this is taking cues from XPDI's S4 filing, where they say "because the combined company was expected to be cash flow positive, the parties also agreed to the elimination of a minimum cash condition in the merger agreement."
Q: BSGA's cash trust is only $58M. Why would BSGA go with such a tiny SPAC?
A: I have a suspicion on this: imagine you're a company that wants to go public but don't really need the funding. What's the easiest/fastest/most cost-efficient way to do this? Well, one approach would be to look at all the SPACs without target (there are currently 500+ SPACs without a rumor or target) and identify which of them provide the least amount of funding and dilution. A smaller trust means that even if there are a high number of redemptions, you're not giving much of your company away due to future warrant exercises. BSGA was one of only 5 SPACs with a cash trust of under $60M without any warrants (all 5 of these do have 1/10 rights per unit). This would allow Bitdeer to go public without incurring much dilution or cost (I believe underwriting expense is based upon the cash trust).
Q: Why bother going public at all if you don't care about raising much funding?
A: Again, same question could be asked for XPDI, but ultimately I think the answer is there are benefits to being a public company apart from raising capital. From Investopedia, we can see a couple: "increased public awareness of the company because IPOs often generate publicity by making their products known to a new group of potential customers" and "IPO also may be used by founding individuals as an exit strategy. Many venture capitalists have used IPOs to cash in on successful companies that they helped start-up." Note that regarding the 2nd point on VCs cashing out, SPACs cannot issue more shares while they are still a SPAC and even after merger, there is typically a 180+ day lock-up agreement for insiders.
Q: Some people say cloud mining is a scam, is that true?
A: Ultimately what matters for valuing Bitdeer is its MW capacity/hashrate. So, whether it really pays out to customers who use its cloud computing platform or keeps the HODL assets for itself is somewhat secondary. Still, we should not be investing in corrupt companies. From these two Youtube reviews (1 and 2), we can see that Bitdeer is not a scam. Note that the 2nd user does complain about poor customer service and outages in subsequent videos, but maintains that it's a legit service. The comments on this reddit post also suggest that it's not a scam as well--users are indeed paid out their fair share. In the near future, I also plan to buy a mining plan on Bitdeer.com and will report back with my results.
Q: The valuation difference argument doesn't always work well for SPACs vs. non-SPACs. For example, $DCRC vs. $QS. Why should it work here?
A: Firstly, we do have SPAC to SPAC crypto-miner comparisons that we can leverage in this case ($XPDI and $VCXA). Both of these valuations and stock prices indicate significant upside for $BSGA as I've shown in the tables above. Secondly, EV/Battery companies are more so valued based on hype and how much people think they will sell/succeed several years from now. Crypto miner valuations, on the other hand, are pretty easy to standardize through concrete metrics such as total hash rate and MW power as they directly correspond to how much Bitcoin/crypto and therefore, revenue, they can generate right now on a per-second basis.
Q: This all still seems too good to be true. Why would Bitdeer take on such a low valuation in comparison to other miners?
A: I don't know of course, but perhaps one reason is that the negotiations mainly took place when BTC was much lower than its current price. Another possibility is that Bitdeer is just looking for the path of least resistance for going public, and therefore doesn't want to deal with the threat of cash trust potentially being completely redeemed and going public. Coming back to an earlier point: if a company that doesn't really need capital were to accept a discounted valuation, it would make sense for them to pick a SPAC with the least amount of cash trust, minimal future dilution, and forgo a PIPE (and maybe not even bother with an investor presentation).
Further Intrinsic Reasons to Be Bullish on Bitdeer:
Sorry, this is turning into a long post, but I have more to say! The above fair price calculation does not include other intrinsic characteristics of Bitdeer that arguably mean it should trade at a premium compared to its peers.
Extrinsic Events That Could Serve as Catalysts for Bitdeer:
With $BSGA (Bitdeer) still trading near NAV, it represents an incredible opportunity to buy what seems to be by far the largest crypto miner in the world with a valuation that implies ~230-370% upside using the average Mkt Cap/MW multiples of its crypto mining peers (XPDI/RIOT/HUT/HIVE). As a bonus, out of all the crypto miners, Bitdeer has the longest history of crypto mining and has the closest ties to Bitmain, the world's dominant supplier of mining machines. Additionally, if BTC rises, all miners will rise, giving Bitdeer even more upside. Note that NAV is $10.10, so even if Bitcoin were to go to $0, this shouldn't really go below $10.00 as arbs would step in for the guaranteed redemption return.