Bitdeer Steps Up Expansion, Tests Convertible Bonds Market, Can It Escape the Profitability Dilemma?

Bitdeer Steps Up Expansion, Tests Convertible Bonds Market, Can It Escape the Profitability Dilemma? With an ambitious expansion strategy and the courage to adjust its tactics, Bitdeer Technologies Group (Bitdeer), led by Wu Jihan as CEO since March this year, seems to be taking bolder strides. On August 15th, Bitdeer Technologies Group (Nasdaq: BTDR) announced plans to publicly issue $150 million in convertible senior notes due 2029

Bitdeer Steps Up Expansion, Tests Convertible Bonds Market, Can It Escape the Profitability Dilemma?

With an ambitious expansion strategy and the courage to adjust its tactics, Bitdeer Technologies Group (Bitdeer), led by Wu Jihan as CEO since March this year, seems to be taking bolder strides. On August 15th, Bitdeer Technologies Group (Nasdaq: BTDR) announced plans to publicly issue $150 million in convertible senior notes due 2029. This move, a little over a year after its listing, reveals positive expectations for future business development. However, as a newcomer to the capital market, Bitdeer might face some pressure in securing market recognition. The second-quarter earnings report released on August 12th might provide some answers.

The report revealed that Bitdeer's total revenue for the second quarter of 2024 reached $99.2 million, a 5.8% year-over-year increase from the $93.8 million recorded in the second quarter of 2023. However, profitability remains elusive, with a net loss of $17.7 million in the second quarter, a reduction from the $40.4 million loss in the same period last year. On August 15th, the China Business Times reached out to Bitdeer for comments on the second-quarter performance, but the company did not provide a response at the time of publication.

Steady Growth in Q2 Amidst Market Pressures

In the second quarter of 2024, Bitdeers performance witnessed steady growth, with total revenue reaching $99.2 million, net profit reaching $24.4 million, a 50.6% year-over-year increase from last year's figure of $16.2 million. Adjusted EBITDA climbed to $24.9 million, marking a 33.2% year-over-year growth. As of June 30, 2024, the company held $203.9 million in cash and cash equivalents, $24.9 million in cryptocurrencies, and $37.8 million in debt.

Bitdeer is a cloud service provider for cryptocurrency mining. Currently, Bitdeer's business encompasses three main areas: cloud computing power sharing, self-operated Bitcoin mining, and mining hosting services, along with operational mining data centers in the United States, Norway, and Bhutan. According to the report, the second-quarter growth was driven by two key factors: the launch of the 100MW Gedu mining data center in Bhutan, increasing self-operated mining power from 3.8 EH/s to 7.3 EH/s, and the rise in the average Bitcoin price.

Bitdeer's performance is heavily influenced by the price trends and output of cryptocurrencies. Due to the Bitcoin halving event in April 2024, Bitdeer temporarily shut down some of its mining machines, leading to a decrease in average hosting capacity. Cloud computing revenue in the second quarter stood at $12.2 million, a decline compared to $18 million in the same period last year.

Looking at the cryptocurrency market, since the Bitcoin halving event in April 2024, the Bitcoin mining reward has been halved from 6.25 BTC (Bitcoin) to 3.125 BTC. Coupled with fluctuating Bitcoin prices and a sluggish fee market, mining profitability faces significant pressure. As a result, crypto mining companies are exploring expansion strategies, such as enhancing chip efficiency and upgrading mining machine performance. Bitdeer is no exception.

In May, Bitdeer successfully raised $100 million through a private placement, with stablecoin issuer Tether Holdings Limited becoming its second-largest shareholder, controlling 25% of Bitdeer's shares. Tether also acquired warrants to purchase up to 5 million shares at $10 per share within a year. If all the warrants are exercised, Bitdeer could potentially raise an additional $50 million.

Bitdeer representatives have stated that the newly announced convertible bond plan and the $150 million private financing received from Tether in May will be primarily used for data center expansion, ASIC-based mining equipment development, and operational capital.

Investing in Research and Development for the Future

Meanwhile, Bitdeer is increasing its investment in mining machine research and development. The report indicates that Bitdeer's Bitcoin mining chip SEAL01 has been successfully tested, marking a step closer to ASIC technology. This chip will be integrated into the new SEALMINER A1 mining machine. In March, Bitdeer announced that the energy efficiency of the SEAL01 Bitcoin mining chip it had successfully designed could reach 18.1J/TH. In June, Bitdeer disclosed plans to acquire ASIC chip design company Desiweminer for $140 million.

Also in June, Bitdeer unveiled its technology roadmap for SEALMINER Bitcoin miners. The SEAL01 chip, boasting an energy efficiency of 18.1J/TH, is expected to begin mass production and delivery in the third quarter of 2024. The SEAL02 chip is scheduled for release in the third quarter of 2024, aiming for an energy efficiency of 14J/TH, with mass production and delivery anticipated to begin in the fourth quarter of 2024. The SEAL03 chip is planned for release in the fourth quarter of 2024, targeting an energy efficiency of 10J/TH, with mass production and delivery projected to commence in the second quarter of 2025. The SEAL04 chip is expected to be released in the second quarter of 2025, aiming for an energy efficiency as low as 5J/TH, with delivery anticipated to begin in the fourth quarter of 2025.

The publication of this mining machine technology roadmap reflects Bitdeer's well-defined planning and optimistic outlook for future development.

The Risks Behind Expansion

Both the cryptocurrency mining market and the secondary trading market are part of the high-risk cryptocurrency industry. Fluctuations in the prices of Bitcoin and other cryptocurrencies, the Bitcoin halving leading to increased mining difficulty, and rising costs are evident challenges. For Bitdeer, the research and development of SEALMINER ASIC chips require significant investments, which could potentially put considerable pressure on profitability in the short term.

Nasdaq data shows that as of August 15, 2024, Bitdeer Technologies Group has a market capitalization of $1.015 billion. Its market value has been quite volatile overall.

This year, Bitdeer's accelerated pace of business development and research and development may be partly attributed to the move of Bitdeer founder Wu Jihan from behind the scenes to a more public role. On March 1st, Bitdeer disclosed a personnel appointment, revealing that Wu Jihan had replaced Kong Linghui as CEO and assumed the role of Chairman of the Board, actively participating in the company's daily operations and management.

According to the 2023 prospectus, Wu Jihan holds 43.6% ownership in Bitdeer's listed company entity. Based on the 1 share, 10 votes rule applicable to his Class V common shares, he wields over 83.3% voting power, effectively controlling the company. According to Tether Holdings Limited's disclosure in late May, it held 25% of Bitdeer's shares at the time, making it the second-largest shareholder.

While expanding its operations and accelerating its pace, the risks behind Bitdeer's development should not be overlooked. Bitdeer's business is highly concentrated, with self-operated mining, cloud computing power, and mining machine and chip sales all reliant on the highly volatile cryptocurrency market. The second-quarter earnings report reveals risks such as rising electricity costs and declining mining efficiency.

In terms of net profit, Bitdeer achieved $82.64 million in net profit in 2021, after incurring losses of $27.9 million and $55.82 million in 2019 and 2020, respectively. Subsequently, the cryptocurrency market entered a bear market, leading to a net loss of $60.4 million in 2022 and $56.7 million in 2023. The second-quarter 2024 earnings report shows a net loss of $17.7 million. While this represents a significant reduction from the $40.4 million loss in the same period last year, profitability is still elusive. However, behind the steady growth in the second-quarter report, numerous risks remain. Bitdeer's foray into convertible bond issuance will serve as a test to gauge the market's recognition of its value.

Conclusion

Bitdeer's ongoing expansion in the cryptocurrency mining sector, along with its active involvement in mining machine research and development, demonstrates a positive attitude towards future development. However, its business is heavily dependent on the cryptocurrency market, exposing it to risks such as price fluctuations, increased mining difficulty, and rising costs. Whether it can successfully transform and achieve profitability remains to be seen. This foray into the convertible bond market will be a crucial step in determining whether Bitdeer can receive recognition from the capital market.