Crypto Currents: Bitfarms to acquire Stronghold in stock-for-stock merger

As bitcoin, ethereum and other cryptocurrencies get increasing attention from investors, Wall Street and its traditional banks continue to adjust to the shift. Catch up on this week’s top stories highlighting the intersection of these old guard and new school areas of finance with this recap compiled by The Fly.

BITFARMS TO ACQUIRE STRONGHOLD DIGITAL: Bitfarms (BITF) and Stronghold Digital Mining (SDIG) announced Wednesday that they have entered into a definitive merger agreement under which Bitfarms will acquire Stronghold in a stock-for-stock merger transaction. The transaction is valued at approximately $125M equity value plus the assumption of debt valued at approximately $50M. As of June 30, Stronghold has a hashrate of 4.0 EH/s and 165 MW of current nameplate generated power capacity, with the potential to bring its hashrate to approximately 10 EH/s in 2025 with fleet upgrades. In addition, Stronghold has 142 MW of current Pennsylvania-New Jersey-Maryland Interconnection import capacity and provides a path to import as much as 790 MW of incremental potential power beyond 2025. The transaction could add up to 307 MW of power capacity and is expected to put Bitfarms on track to increase its energy portfolio to over 950 MW by year-end 2025. There are multiple studies underway to potentially increase the total import capacity with an additional 648 MW beyond 2025. Ben Gagnon, CEO of Bitfarms, said, “After three years of ongoing discussions, I am proud to announce this transformative acquisition, which is a decisive step in securing a strong future for Bitfarms. With this transaction, we expect to expand and rebalance our energy portfolio to 950 MW with nearly 50% in the U.S. by the end of 2025 and have visibility on multi-year expansion capacity up to 1.6 GW with approximately 66% in the U.S., up from approximately 6% today. By vertically integrating with power generation, expanding our energy trading capabilities and securing two high potential sites for HPC/AI with significant multi-year expansion potential, we are executing our strategy to diversify beyond Bitcoin mining to create greater long-term shareholder value.”

The transaction has been unanimously approved by the Boards of Directors of both companies and is expected to close in the first quarter of 2025. Under the terms of the agreement, Stronghold shareholders will receive 2.52 shares of Bitfarms for each share of Stronghold they own, representing consideration per share of $6.02 and a 71% premium to the Stronghold 90-day volume-weighted average price on Nasdaq as of August 16. At close, Stronghold shareholders are expected to own just under 10% of the combined company.

Following the news, H.C. Wainwright said Bitfarms paid a fair price for Stronghold since it is a “transformational” acquisition for the company. The deal demonstrates management’s commitment to not only scaling the company’s bitcoin mining operations but also accelerates Bitfarms’ recently announced plans to diversify into synergistic businesses, such as power generation and energy trading, the analyst said. The firm continues to believe the Street is significantly undervaluing Bitfarms’ “transformational fleet upgrade, and compelling organic growth plans through 2025.” It reiterated a Buy rating on the shares with a $4 price target.

H.C. Wainwright also downgraded Stronghold to Neutral from Buy without a price target.

GRYPHON TO ACQUIRE UP TO 2.9 MW OF MINING OPERATIONS: Gryphon Digital Mining (GRYP) announced Tuesday that it has entered into an agreement to acquire up to 2.9 MW of bitcoin mining operations powered by ultra low-cost electricity in the $0.01/kWh range. The operations are located in Louisiana and come fully equipped with assets, including gas power generators, containers, and 59 PH/s of bitcoin miners. At a cost of $1.5M that can be funded by existing working capital, the acquisition is expected to be immediately accretive as it will generate free cash flow on day one. “We believe that this acquisition of ultra low-cost power is our first step along an identified path of over 500 MW of similar low-cost power generation opportunities,” said d Rob Chang, CEO. “The current post halving world is requiring bitcoin miners to secure low-cost power in order to thrive in an increasing global hashrate environment. With the acquisition of this ~1 cent power asset and future power generation assets with similar costs, we believe Gryphon will enhance its position as a leading low-cost operator with a competitive advantage in a key cost aspect of the bitcoin mining business.”

ANALYST LOWERS PRICE TARGETS: JPMorgan lowered the firm’s price target on Riot Platforms (RIOT) on Friday to $9.50 from $12 and kept an Overweight rating on the shares. The analyst updated bitcoin miner models to reflect the Q2 results as well as recent changes in the price of bitcoin and the network hash rate.

The analyst also lowered the firm’s price target on Marathon Digital (MARA) to $12 from $14 and kept an Overweight rating on the shares and on CleanSpark (CLSK) to $10.50 from $12.50 and kept a Neutral rating on the shares.

Additionally, JPMorgan lowered the firm’s price target on Iris Energy (IREN) to $9.50 from $11 and kept an Overweight rating on the shares. Iris Energy remains JPMorgan’s top pick in the space.

COINBASE PRICE TARGET LOWERED: On Wednesday, Jefferies lowered the firm’s price target on Coinbase (COIN) to $220 from $245 and kept a Hold rating on the shares. The firm updated its payments models to reflect the key themes post Q2 earnings. The group is in a better spot with stable trends expected to persist through the second half of 2024, and an increasing number of “own-able stories,” the analyst said. For Coinbase, the firm says a softer market backdrop and lower volatility drove a quarter-over-quarter decline in transaction revenue.

MICROSTRATEGY INITIATED WITH OVERWEIGHT: Cantor Fitzgerald initiated coverage of MicroStrategy (MSTR) on Thursday with an Overweight rating and $194 price target. MicroStrategy is technically a provider of business intelligence and analytics software, but the value in the business lies in its ability to cost effectively accumulate bitcoin, the said. Cantor believes bitcoin will be worth more in the future than it is today. Unlike currencies, bitcoin will have a supply increase by only 0.8% this year, and that percentage will decline every year until the last bitcoin is mined in 2140, Cantor said. It thinks demand for bitcoin “will meaningfully accelerate from here.”

CRYPTO STOCK PLAYS: Publicly traded companies in the space include Bit Digital (BTBT), Coinbase, Core Scientific (CORZ), Greenidge Generation (GREE), Marathon Digital, MicroStrategy, Riot Platforms, Stronghold Digital Mining and TeraWulf (WULF).

PRICE ACTION: As of time of writing, bitcoin rose about 4% this week to $61,029 in U.S. dollars, according to CoinDesk.