What is Gryphon Digital Mining?

Creating one Bitcoin quickly usually requires the collective efforts of hundreds–sometimes thousands– of powerful computers. These “miners” suck up a lot of energy and require a lot of environmental support—including 24/7 air conditioning—to keep them running efficiently.

If monthly energy bills are higher than the value of the Bitcoin produced, then it’s not a profitable enterprise. Nor does it align with the overall ethos of Bitcoin mining, which suggests that it should be done in a manner that creates a minimal carbon footprint.  

That’s why a growing number of cybercurrency mining companies have committed themselves to operating in regions where power can be supplied by renewable energy networks.

Of this new generation of “green" Bitcoin miners, Las Vegas-based Gryphon Digital Mining (GRYP) stands out.

According to its prospectus, GRYP is “an ESG-committed Bitcoin miner with the mission to create the world’s largest Bitcoin miner with a neutral carbon footprint.”

GRYP mines Bitcoin using 9,000 ASIC mining computers located in upstate New York and earns revenue primarily by selling only as much of Bitcoin needed to pay its operating expenses and to reinvest in operational expansion.

Sustainable from the start

Since its founding in 2020, GRYP’s mission has always been to “create the leading carbon-neutral bitcoin miner.”

In fact, according to co-founder and CEO Rob Chang, GRYP officially became a carbon-negative Bitcoin miner in 2024. Hydropower plants in upstate New York generate all the 28 megawatts of power used to run GRYP’s ASIC miners.

The company also uses carbon credits to offset the carbon costs of non-operational activities such as business travel and deliveries. 

Extremely efficient

GRYP boasts that it’s a leader in Bitcoin efficiency, defined as BTC/EH, a measure of the number of Bitcoin generated per exahash of hashing power deployed. According to its own research, its current Bitcoin efficiency score of 49 BTC/EH is higher than the industry average of 44 BTC/EH (a higher number is better). Since its inception, GRYP claims that it has always ranked among the top four miners in terms of Bitcoin efficiency.

Chang attributes this efficiency to the talent of his team and the quality of its ASIC miners. But GRYP’s business model is optimized for managing costs in general. 

All of its miners are located in leased third-party data centers, so there’s no real estate ownership overhead to deal with.

With only three full-time employees, personnel costs are manageable. And its 100% commitment to using renewable energy sources shields it from the unpredictability of energy costs charged by utilities that rely on fossil fuels.  

In fact, in 2023, GRYP’s claimed that its average Cost-Per-Bitcoin (CPB) was around $18,200, among the lowest in the industry.

This is important, because in 2024, its CPB—and the CPB for all miners--rose significantly, due to a unique and entirely predictable Bitcoin phenomenon. One that is destined to cause a shakeout in the industry but may potentially benefit well-managed miners like GRYP in the long run.

This phenomenon is called halving. To understand its impact, it’s important to understand how Bitcoin mining works—and how miners profit from it.

If you already know this, feel free to skip ahead.

A short history of Bitcoin

The concept of Bitcoin was introduced in 2009 in a white paper by a scientist known only by their pseudonym, Satoshi Nakamoto.

Nakamoto envisioned Bitcoin as a completely unregulated digital currency that could be created by anyone who had extensive expertise and enough computer power to make their effort worth it.

It begins with the blockchain

At the heart of all cybercurrency transactions is a blockchain, a shared database and ledger that creates a secure, publicly accessible record of cybercurrency transactions that cannot be altered.

All Bitcoin transactions must be added to a blockchain. Before they can be added, they must be identified and validated.

Someone has to do this work, and that’s where Bitcoin miners come in. They employ extremely powerful computers to identify and validate Bitcoin transactions and add them to the blockchain.

When miners validate a certain number of transactions and add them to the blockchain, they receive a “block reward” in the form of new Bitcoins.

Until this year, miners earned 6.5 Bitcoins for every block reward. Multiply this by the price of one Bitcoin (which, at the time of this writing, has been hovering around $64,000) and one block reward could be worth around $416,000 (the “real world” amount may actually be more or less, but we’ll use this number here for illustrative purposes).

Selling the Bitcoin they’ve earned generates revenue for miners (they also earn additional revenue from transaction fees). It stands to reason that miners who can create blocks faster will earn more Bitcoin—and thus generate more revenue--faster.

GRYP claims that it mines, on average, one and a half Bitcoins per day, which, at current prices, is worth about $96,000.

Before April 2024, GRYP’s cost for producing these Bitcoins would theoretically have been around $27,300 ($18,200 CPB x 1.5), generating an estimated daily profit of around $68,700.

However, GRYP has stated that in 2024 its CPB will rise to around $36,400 due to the most recent Bitcoin halving that occurred on April 19, 2024.

To understand why, it’s important to understand when and why halving occurs. Again, if you know all this, skip ahead.

Designed to maintain value and scarcity

Nakamoto mandated that the key to ensuring the lasting value of a Bitcoin would be to limit the total number that would ever be created. They set that limit to 21 million.

So far, 19 million Bitcoins have been mined. After the next two million are created, mining will cease. 

To make sure the “creation cap” isn’t reached too soon, Nakamato also invented the idea of periodically “halving” the number of Bitcoin awarded for each block reward.

Here’s how it works: Every time 210,000 blocks are created, the number of Bitcoins awarded per block is halved. When Bitcoin launched in 2009, miners earned 50 Bitcoin for each block reward. In 2020, this fell to 6.25 Bitcoin.

On April 19, 2024, the award dropped to 3.125 Bitcoin per block.

Halving can have a profound impact on miners. Since they’re now receiving half the number of Bitcoin for the same amount of work (and expense), their profit margins may be significantly lower.

Getting back to GRYP, if by increasing computer power its mining efforts can still produce 1.5 Bitcoin per day, the cost of producing this amount will rise from around $27,300 to $54,600 ($36,400 x 1.5). At a price around $64,000 per Bitcoin, this would theoretically reduce GRYP’s daily profit from around $68,700 to approximately $41,400. 

GRYP prepared for this contingency by replacing its legacy ASIC miners with a new generation of more powerful models.. This initiative was completed in April, 2024.

Whether this costly upgrade will enable GRYP to maintain or improve output is uncertain. In its monthly operational press releases, the company stated that it produced 40 Bitcoin in April, down from 45 in March and 52 in February.

A post-halving rally to the rescue?

The potential “glass-half-full” in a post-halving reality is that these events often spark a rally, as investors perceive that reduced production will increase the value of new and existing Bitcoins. 

Indeed, historically, Bitcoin prices typically start spiking shortly before a halving occurs (as investors anticipate higher future prices) and extended rallies follow. 

In 2024, the pre-halving Bitcoin rally began in late January, when the price rose from around $42,000 before peaking at around $73,000 in mid-March. However, the post-halving rally hasn’t yet materialized. On “Halving Day,” April 19, Bitcoin was trading at around $63,000. As of this date of publication, its price hasn’t changed significantly.

Evaluating GRYP’s “real” potential as an investment opportunity

Trading on NASDAQ as GRYP, GRYP is a small-cap stock with a market capitalization of around $60 million, according to Chang.

It’s difficult to get consistently accurate online financial information on GRYP, since the numbers often vary from site to site and don’t always align with GRYP’s own figures.

However, based on fundamentals posted on NASDAQ, where GRYP trades, for fiscal year 2023:

•  Total revenue declined to $6.8 million, from $10.4 million in 2022.

• Gross profits declined to $3.4 million from $5.4 million in 2022.

• Net income losses were minus $11.57 million. This is an improvement over the minus $79 million in net income losses in 2022.

• Net cash flows are negative $7.4 million.

One interesting number to consider is EBIDTA. According to numbers GRYP provided in an April investor call, EBIDTA was negative $13 million in 2023, compared to a positive figure of $17 million in 2022. However, using GRYP’s definition of “adjusted EBIDTA,” by taking out the impacts of factors such as depreciation and amortization, adjustments for non-cash and non-current items, and “impairments of miners,” adjusted EBIDTA would be $4.8 million. It’s up to investors to determine whether this is a valid financial statistic or accounting slight-of-hand.

It’s also difficult to get long-term analysis of GRYP as a stock. That’s because it’s only been publicly traded since February, after completing a merger with Akerna, a NASDAQ-listed software company serving the cannabis industry.

The combined entity sold off Akerna’s other businesses, leaving Gryphon Digital Mining as the “face” of the combined company, which started trading as GRYP on February 9, 2024.

Its starting price was $7.66 per share.  As of the second week of May, it was trading around $1.50.

Like many small companies, GRYP is not widely covered by traditional analysts.

Opinions among technical analysts are mixed. Trading Central (above) is bullish on GRYP over the near term, perhaps because of its low share price, but bearish over the short term.

In terms of a one-month outlook, Tipranks is mostly bearish, with only a few indicators signaling a “Buy.”

Consider this unique “miner” valuation metric

If most of these traditional valuation metrics seem negative, there’s one more you might want to consider that’s specific to Bitcoin miners: the price-to-hash ratio (P/H). Here’s the calculation:

Enterprise value (Market Capitalization + Net Debt [Total Liabilities – Cash – Digital Assets Holdings] / Realized Hashrate.

A hashrate measures how quickly and efficiently a cryptocurrency miner can generate Bitcoin. A mining company’s Realized Hashrate is calculated based on its monthly Bitcoin production, the total block rewards in the Bitcoin network, and the network’s average hashrate for that month.

Investors generally want to see a lower P/H ratio, since this means that they’re paying less for the quantity of Bitcoin a miner is creating.

CEO Chang claims that GRYP’s P/H ratio is around 66 or 67, compared to an industry average ranging between 100 to 200. He also believes that this means the company is greatly undervalued, compared to its more costly competitors.

GRYP’s future aspirations

GRYP understands the importance of increasing production efficiency in a post-halving world. Over the past year, it replaced its legacy ASIC miners with a new generation of more powerful models at considerable cost.

It also plans on capitalizing on the likely shakeout in the industry, looking for opportunities to merge with or acquire floundering Bitcoin mining firms (or, better still, purchase their ASIC miners).

Who might invest in GRYP?

Potential investors can look at GRYP through a number of lenses.

ESG advocates will appreciate GRYP’s fulfillment of its goal to become carbon-negative and the fact that three of four members of its Board Directors are women.

Contrarian investors who believe GRYP’s management team will improve its financials may see GRYP’s current price as an opportunity to get in on an excellent small cap value opportunity.

Bitcoin investors who believe that the price movement of Bitcoin will mirror the long-term upward trends of post-halving periods may see owning shares as a means of diversifying their cybercurrency holdings.

But what all potential investors need to understand is, like Bitcoin itself, GMD is a highly speculative investment. However, unlike Bitcoin, it’s actually backed by quanfitable assets—a sustainable operating model, state-of-the-art technological resources, and proven management expertise.

This may make GRYP a far more “real” opportunity than the cybercurrency it creates.

Disclosures from Alts

• Neither the author nor the ALTS 1 Fund holds any interest in Gryphon Digital Mining, or any other companies mentioned in this issue

• This issue contains no affiliate links

d