1 of 2 lottery tickets from last month
Bit Digital, Inc. BTBT was one of two “lottery” trades I made last month on Portfolio Armor Trading Substack.
Although unique as a Bitcoin BTC/USD miner, Bit Digital also operates in AI and Ethereum ETH/USD staking. I contacted the company to find out more information. Below is a Q&A with Sam Tabar, CEO of Bit Digital. We then conclude with a brief reminder about risk management in light of the recent outbreak of war between Israel and Iran.
Conversation with Bit Digital CEO
Portfolio Armor: Thank you for taking the time to answer a few questions about your business. Bit Digital is actively engaged in Ethereum staking. Do you know if any other publicly traded Bitcoin miners are doing this?
Sam Tabar — Bit Digital CEO: As far as we know, there are no other publicly traded Bitcoin miners staking Ethereum. We pioneered a business model we call the “Bit Digital Flywheel” that leverages the synergies between Bitcoin mining and Ethereum staking, allowing us to continuously earn rewards and reinvest them into our business. The beauty of this business model is its simplicity. Continuously mine Bitcoin to earn rewards, exchange a portion of your Bitcoin mining rewards for Ethereum, stake Ethereum to earn profits and accumulate rewards, and use your Ethereum earnings to earn rewards. Pour into our business and repeat.
PA: Bitcoin is sometimes compared to “digital gold.” How do you explain ETH to an investor who is only vaguely aware that it is the second largest coin by market capitalization?
ST: Bitcoin is a great store of value and will eventually replace gold as a store of value. Ethereum is a completely different technology and has many different use cases with unique market characteristics. It has a programmable language with smart contracts that will eventually replace financial systems and lawyers. Bitcoin and Ethereum are a powerful combination.
Bit Digital for Ethereum Staking
PA: Could you elaborate on how Ethereum staking fits into your company’s overall strategy, especially in terms of diversifying revenue streams?
ST: As Bitcoin margins have shrunk since the April halving, miners have had to diversify into new revenue streams to remain competitive. We have prepared well for the halving. Although only one of our three revenue streams, Ethereum staking complements our Bitcoin mining and HPC/AI businesses. We believe the concept of earning passive yield in terms of ETH is very attractive compared to static notional balances.
On a different note, the initial approval of the Ethereum ETF marks another major milestone towards mass adoption. However, we believe that ETFs may have flaws. Investing in an ETH ETF is one way to gain exposure to digital assets, but it misses out on the significant benefits that ETH offers. Issuers cannot stake their Ethereum on ETFs, so they cannot earn yield or even access the network. As one of the only capital markets agencies offering economic exposure to ETH staking, Bit Digital offers shareholders exposure to both Ethereum and the benefits of staking, unlike ETH ETFs.
Ethereum Bit Digital Details
PA; Can you elaborate on how you manage the risks associated with staking Ethereum, such as slash risk and liquidity risk?
ST: Currently, we are not liquidating our shares.
PA: Beyond the November election, what potential catalysts do you see for BTC and ETH in the coming months?
ST: The November election, as well as changes in monetary policy such as a potential interest rate cut by the Federal Reserve, could lead to renewed interest in digital assets as an inflation hedge. Regulatory developments, whether positive or negative, will impact both Bitcoin and Ethereum. A clear or favorable ruling could attract more institutional investors, which would ultimately attract more retail investors. High inflation and economic uncertainty are likely to further increase the demand for Bitcoin as a store of value.
Even with the arrival of ETFs in the rearview mirror, growing institutional interest in both Bitcoin and Ethereum remains a key driver. More companies are likely to adopt blockchain technology, whether holding digital assets on their balance sheets or using DeFi and smart contracts for financial services.
Bit Digital on AI
PA: Another aspect of your business that seems unique to Bitcoin miners is AI infrastructure services. I have a fleet of Nvidia Corporation NVDA H100 GPUs in my Tier 3 data center. Will these GPUs be used for mining operations as well? If not, are there other synergies between AI business and Bitcoin mining and Ethereum staking?
ST: H100 is used for HPC/AI operations only. Diversifying our revenue streams by adding HPC/AI services and Ethereum staking to our core Bitcoin mining business has proven to be an effective strategy since the April halving. I am. As managers of publicly traded companies, we need to think about shareholders and shareholder value. Rather than just hoping for Bitcoin to rise, they need to put their money into businesses that will benefit shareholders. Expecting Bitcoin to go up is not the right way to run a business.
Bitcoin miners can leverage their existing skills. Source specialized hardware, choose the right data center, and acquire customers. We were able to build our HPC/AI business with the same team we put in place to run our Bitcoin mining business, and we recently hired a revenue officer, a chief technology officer, an experienced sales team, and a top-tier AI announced major new hires. /ML Engineer to help grow your HPC/AI business.
We like the stable, predictable revenue and cash flow streams that HPC provides to complement the fluctuating returns of Bitcoin mining and Ethereum staking. HPC cash flow streams also provide cash flow that can be spent on Bitcoin mining rigs at appropriate stages in the cycle when ASICs are cheapest and other miners do not have cash flow to expand. The optionality of capital allocation is the main advantage of implementing these synergistic businesses.
Bit Digital details about AI
PA: Can you tell us more about what AI infrastructure services include other than GPU usage?
ST: Our AI infrastructure services go beyond just renting GPUs. We provide customized solutions that optimize efficiency and scalability based on each customer’s needs. In addition to providing computing power, we manage the entire infrastructure lifecycle, including network design, installation, optimization, and ongoing maintenance. We work with top-tier data centers to ensure superior uptime and leverage our procurement expertise to get our clients up and running at industry-leading speeds. Additionally, we have in-house machine learning engineering expertise and partnerships that can help improve the efficiency of our customers’ training and inference processes. By providing support across the stack, we enable our customers to maximize the performance and value of the infrastructure we provide.
PA: Your stock is currently trading below $3 per share. A low stock price often suggests a company has a weak balance sheet, but no debt on the balance sheet and plenty of cash on hand. Have you considered reverse partitioning?
ST: We believe our stock is misunderstood, undervalued and undervalued. Our balance sheet is certainly not a problem, with over $200 million in liquidity and no debt as of the end of August. However, I’m not really thinking about reverse splits that much at this point. We think the stock price will normalize over time as investors begin to understand the business. We also think the company is working on some exciting initiatives that will drive share price growth.
Notes on risk management
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