Introduction

Established in 2018, Bitdeer Technologies Ltd,, is a vertically integrated technology-focused company that provides both proprietary and host mining, as well as servicing mining clients needs with bespoke infrastructure and container facilities, with a commitment to developing technology in-house to advance bitcoin mining.  On March 4, 2024 Bitdeer announced its successful testing of the 4 nanometer process technology chip, in its bid to develop its own ASIC computer and compete with Bitmain. It expects to start producing the new mining machines this year.

Bitdeer was founded by Chairman, Jihan Wu, who also co-founded Bitmain Technologies Ltd as the first investor in application-specific integrated circuit (ASIC) chips for bitcoin mining. In late 2011, he achieved a notable accomplishment by translating Satoshi Nakamoto's Bitcoin white paper into Chinese. This pivotal document interpreted the fundamental principles of Bitcoin and its underlying technology.

Effective March 1, 2024, Jihan Wu assumed the additional role of Chief Executive Officer, and is supported by the broader management team. The management team includes Matt Linghui Kong, Chief Business Officer, who previously led BitMain's Application Software Department and managed projects at Baidu, Yahoo, and Tencent, and Haris Basit, who has co-founded successful startups, held leadership positions in semiconductor and renewable energy companies such as Averatek, Cryplex, and Multigig.

Despite its debut on the NASDAQ stock exchange in April 2023, Bitdeer boasts a decade-long history of Bitcoin mining, surpassing the tenure of many of its North American peers. With a global workforce of 200 employees, over a quarter are dedicated to Research and Development, underscoring the company's commitment to innovation and technological advancement.

Headquartered in Singapore, the company has management of six data centers in three continents, controlling approximately 900 MW of power and a total hash rate of 21 EH/s.  The majority of its mining operations are currently based in North America, at sites in Texas, Tennessee and Washington and with further operations in Norway and Bhutan.  With a clear strategy for a further 1 GW of power, Bitdeer has already commenced construction on a 175 MW data center expansion in Norway,as well as land preparation for the construction of a 221 MW data center in Ohio, in February 2024. Both facilities are expected to be completed by mid 2025.

Business Units

Bitdeer currently has three business revenue streams associated with traditional Bitcoin Mining:

• Self mining
• Hosting (General and Membership)
• Cloud hash rate

These services currently contribute robust margins to the company, as evidenced by the table below, taken from their latest quarterly update. The aggregate proprietary hash rate (comprising self-mining and cloud operations) generated total revenues equivalent to 54.4% of the total business in the last reported earnings update.

The Research and Development team at Bitdeer has developed a cloud hash rate technology, which enables proactive hash rate sales and real-time energy consumption billing. This service allows customers to engage in remote Bitcoin mining and take advantage of Bitcoin price fluctuations for profit generation. Thus far, it has shown favorable gross margins, exceeding those of other business lines within the company.

As can be seen from the graph below, in 2021 the company focused on proprietary hash rate, with the self mining and cloud hash rate making up to 90% of the total hash rate.  As the price of Bitcoin started to fall in 2022, Bitdeer used its ability to strategically pivot to award more hosting contracts, with an emphasis on the cyclical nature of Bitcoin.

The General and Membership hosting divisions achieved 30% and 20% in gross margins, respectively, contributing to a total gross margin of $12.14 million or 25% in the last reporting period.  This has been a good strategy to have in place, during a bear cycle, providing a steady source of income and contribution towards company overheads.

High Performance Computing (HPC) supporting Artificial Intelligence (AI)

Similar to several Bitcoin mining and Data Center management companies, Bitdeer has recently disclosed its intention to move into the HPC and AI sector, thereby expanding its bailiwick of services for revenue growth in a rapidly evolving industry, where income is independent of the Bitcoin price.

In December 2023, the company took delivery of its first batch of DGX H100 units from NVIDIA Corporation (NVDA), a preferred partner, which are currently undergoing installation and testing. It is anticipated that the company will commence its DGX SuperPOD-based high-performance cloud service platform by the end of this current quarter.

Hardware Manufacturer and Launch of New ASIC Chip to Compete with Bitmain

Bitdeer's venture into the miner manufacturing sector stands as one of its most compelling and potentially lucrative developments. They recently secured an order with Taiwan Semiconductor Manufacturing Company Limited (TSMC) for the procurement of masks and wafers tailored specifically for Bitcoin ASIC mining chips.

After design and prototype testing Bitdeer has unveiled SEAL01, a cutting-edge Bitcoin mining chip built with 4-nanometer process technology. Achieving a power efficiency ratio of 18.1 J/TH, SEAL01 potentially offers enhanced mining performance when compared to the latest mining machines available from Bitmain and MicroBt.

This strategic shift promises potential advantages over peer miners. Firstly, acquiring the latest mining rigs during periods of profitable Bitcoin mining poses a genuine challenge due to supply constraints. Moreover, the cost of mining machines has traditionally mirrored Bitcoin's price fluctuations. By internalizing production, Bitdeer stands to realize significant cost efficiencies, recognizing that 80% of a mining machine's production cost stems from chip components. This autonomy translates to enhanced control, ensuring management over its own production timelines, thereby mitigating risks associated with manufacturing delays and price escalations.

While Bitdeer's primary objective is self-sufficiency in machine production, it also recognizes the potential in supplying machines to other mining companies and challenging the more established market players, like Bitmain, MicroBT, and Canaan. In essence, Bitdeer's move into miner manufacturing not only secures its operational resilience but also positions it as a formidable player in the dynamic landscape of cryptocurrency mining.

Growth Strategy

Bitcoin miners must stay competitive amidst the global hash rate landscape. Despite the overall hash rate surging from 266 EH to 542 EH, marking a 104% increase, Bitdeer escalated its proprietary hash rate by 168% throughout 2023. Moreover, the company has disclosed intentions to more than double its electrical capacity by the conclusion of 2025. This expansion initiative, illustrated in the table below, could potentially add an extra 60 EH of hash rate if executed successfully. With the company nearing its inaugural IPO anniversary on the NASDAQ exchange, additional avenues to secure funding are expected to emerge to support its ambitious growth trajectory.

Cost to mine a Bitcoin

During the reporting period ending September 30, 2023, leveraging a proprietary self-mining hash rate totaling 8.7 EH/s, the company achieved notable efficiency in Bitcoin production. Each Bitcoin was generated at a total cash cost of $18,319, competing well when compared with peer miners Bitfarms (BITF), Cipher Mining (CIFR), and IREN (IREN).

Bitdeer's accomplishment was bolstered by the company's disciplined approach to cost management, as evidenced by its ability to maintain operating costs at a modest 17.3%. This figure starkly contrasts with Cipher Mining's (CIFR) approach, which despite leveraging one of the lowest power costs among miners, allocated $45.60 of every $100 in revenues towards operating expenses.

Balance Sheet Strength

A strong balance sheet is crucial in Bitcoin mining due to the industry's volatility and capital-intensive nature. It enables the company to withstand market fluctuations, fund equipment upgrades for maintaining competitiveness, navigate regulatory changes, and seize investment opportunities.

Upon initial assessment, all four companies demonstrate strength in meeting their short-term obligations (current ratio) and maintaining low debt levels (debt ratio), especially pertinent to  Bitdeer. A closer examination reveals that the company also has a good level of cash and cash equivalents on the balance sheet, particularly in light of the impending 50% reduction in rewards.  As this will effectively increase the costs to mine Bitcoin overnight, in terms of energy and other operating costs, having a good treasury position will assist the company to navigate until the price of Bitcoin reaches a position where it continues to be profitable to mine.

Summary

In conclusion, Bitdeer adopts a multifaceted approach to Bitcoin mining and beyond, positioning itself as a prominent player globally. Drawing upon its decade-long mining experience and a team dedicated to innovation, Bitdeer operates strategically across various continents, emphasizing its vertical integration.

Bitdeer cloud hash rate service and the move into high-performance computing and miner manufacturing, demonstrates resilience and adaptability, backed by a strong balance sheet and a dedication to operational excellence.

The company appears to be prepared to navigate the changing dynamics of the Bitcoin market with confidence and foresight.