Bitfarms Increases Hashrate As It Prepares For Bitcoin Rebound

Bitfarms (NASDAQ:BITF) comes after a weak month, when production fell by almost 10 percent from August to September. Combined with the ongoing weakness in the price of Bitcoin (BTC-USD), that has kept the share price up BITF muted, although the market awaits the next CPI reading on October 13, 2022, at 8:30 AM EST.

As with all Bitcoin miners, BITF’s share price has moved in line with the decisions of the Federal Reserve in response to the interest rate hikes as it attempts to tame high inflation rates.

Barring an unknown Black Swan event, my view is that we are likely to see inflation start to fall through late 2022, paving the way for market sentiment to improve, which will attract more money to riskier asset classes like Bitcoin , which will increase the share price of BITF.

In this article, you can look at the impact of the Federal Reserve on the company, how the next few months will most likely play out, and how BITF is positioning itself for the eventual rise in the price of Bitcoin.

How and what BITF has done recently

When it comes to the latest BITF production numbers, 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 it to three things. September has 30 days, so it had one less day of production; it also had a brief outage that impacted mining operations; and lastly, 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. Still, the 481 Bitcoins mined were 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 that it sold some of the miners for $3.8 million. The stated purpose was to improve the efficiency of the mining fleet.

As of September 30, the BITF held 2,065 BTC in custody, which based on the price Bitcoin is trading at the time of writing, is worth $42 million.

Adds production capacity

The company has worked to increase production capacity while at the same time diversifying geographically. BITF now has 10 mining facilities in four countries.

The last facility it opened is in Rio Cuarto, Argentina. The 50 MW storage is the first of two, with the second storage already under construction. The first plant started up with 10 MW capacity, which is expected to increase in 10 MW intervals until it reaches full capacity by the end of 2022. After the added 10MW in capacity, it has brought the total capacity for the company to 176MW.

As a result, it increased BITF’s hash rate from 3.9 exahash in August to 4.2 exahash in September. That’s a significant improvement from 1.5 exahash last year in the same period.

Based on my thoughts on how effective interest rate increases will be on inflation through the rest of 2022 and into early 2023, BITF is positioning itself well for a sustainable recovery in the price of Bitcoin in 2023 and beyond.

The Fed and its policies

Of course, the Federal Reserve’s response to rising inflation has had a detrimental effect on most stocks, especially technology and high-growth stocks that are expected to see shrinking margins and lower earnings as a result of more expensive capital.

Since Bitcoin and miners like BITF have moved in correlation with high-growth tech stocks through 2022, it has led to a big drop in the share price.

For that reason, the next two to three CPI readings are extremely important to how the company will perform over the next six months or so. If the measurements show that higher interest rates are starting to lower inflation, that will cause more investors to pile into riskier stocks and asset classes like crypto.

Although it will probably result in a large increase, I don’t think it will be until it is two or three months that inflation is confirmed to be falling. That said, I think the declines will be higher and we will likely be in a phase 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 occur and the price of Bitcoin collapsed to close to $10,000 or so, BITF would not only face performance difficulties, but could also come 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 affect the share price disproportionately. How much of an impact would be determined by the nature of the unforeseen event.

I bring this up because of the Bitcoin miners I am invested in and/or follow, BITF, due to its low share price, is more prone to this happening than its peers.

As for inflation, if it remains stubborn but does not fall, the BITF is likely to remain in a period of consolidation until it is confirmed that inflation is falling in response to the Fed’s rate hike.

Conclusion

I think September may have been an anomaly for BITF in terms of the nearly 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 will be detrimental to the company, especially if the price of Bitcoin remains subdued.

All that said, the performance of BITF and its peers is directly correlated with the price movement of Bitcoin, and how Bitcoin goes so will BITF. It’s surprising how forgiving the market is when sentiment regarding Bitcoin turns bullish.

Again, the key for BITF through the rest of 2022 and into early 2023 will be the CPI release. If things turn out to be better, high growth assets will attract more investment and BITF will benefit. On the other hand, if inflation remains stubborn and stagnates or even increases somewhat, it will cause Bitcoin to be hammered again, putting downward pressure on the share price of BITF.

If that were to happen, I still wouldn’t be too worried about BITF for those in it for the long haul. 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 things start to improve.