From the desk of the CFO: Financial update 22 November 2018
The recent decline in the cryptocurrency market, with BTC sinking as low as $4 300, has been disappointing for miners and the market at large. However, given the amount of fraud present in the market, 'fly-by-night' businessmen, failed ICO's, and regulatory non-compliance, a correction of this size is sure to wash-out unprofitable businesses and correct market inefficiencies, which is necessary and healthy for the long term functioning of the market. We are also seeing a welcomed decline in BTC difficulty which will likely continue as more miners switch off their machines.
MoonLite being cash-rich, remains well positioned to exploit these conditions. Equipment prices have corrected and new machines are being released regularly. As I've said before, the probability that the bear market will end increases with more time that passes. A bottom will be found at a price where enough demand exists for the given supply. Long term HODL'ers will be reluctant to sell at a loss, which is to say, selling is likely to stop and buying is likely to begin when we reach a price at which most of the long-term accumulation of this cycle took place. If we examine the BTC price history, particularly 2017 when BTC went mainstream, we traded in a range with a low of $735 in January 2017 and a high of $3 000 end July 2017, and again we corrected to circa $3 000 mid September 2017 from a high of $5k early September 2017.
It was essentially 3 month's worth of trading activity that pumped the price from $3k to $20k. Given this line of thought, I hypothesize that we will bottom around the $3 200 mark. There is also a major unrealised Algo Target that exists at $3 200 which is shown in the chart below. It is well known that there are algorithms written to buy/ sell the 50% FIB pull and take profit at the -23.60%. This target has been sitting there since BTC got rejected twice around the $12k mark. I never thought we'd actually get that low but it's looking like a real possibility now.
We have access to new 37 TH/s and 44Ths machines and therefore I have recalculated our breakeven price, at current levels of difficulty, to be $2 600. This is a significant reduction from the $4 600 previously calculated and is due to the increased efficiency in the newest available machines. This however gets eroded almost immediately if difficulty increases and would need to be recalculated. Our total fixed and variable costs to run 4400 machines (9MW) is approximately $400k with a Capex cost of $7m. MoonLite could therefore run Phase 1 and some of Phase 2 and fund costs from capital only for approximately 60 months/ 5 years before we would need to liquidate any holdings. This puts us in a unique position whereby we are able to finance our operation's running costs from capital, and accumulate BTC which we can sell later once the market has recovered. This is a higher risk strategy in the sense that the market could collapse completely, but we remain long-term bulls and are in the game for this reason. We are therefore continuing with our buildout given market conditions and will float our operation from capital for as long as necessary until such time we can liquidate at higher BTC prices which will be more profitable for our tokenholders. *There will be stop losses in place.
We have calculated MoonLite's forecasted cash flow and profitability, based on 5 different scenario's, and presented the information in the comparable tables below. Given the recent decline in BTC price, we have included $5 600 as a scenario (at the time of preparing this report, BTC was $5 600), but given the stability at $6 500 over the last few months and that fact that the 'Point of Control' on the 'Volume Profile Visible Range' is $6 500, sampling data since 1 May 2017, we have used $6 500 as the base price from which to extrapolate a bear and two bull cases. The bear case assumes a daily decrease in the $6 500 BTC price of 0.01%, and the bull cases assume a price increase of 0.01% and 0.02% daily, respectively. In the summary table below, we have used the Month 6 figures, as it is very difficult to predict with any accuracy what the BTC price and difficulty will be in 12 months from now, as well as what machines will be available as current machines are redundant at low BTC prices and exponentially increasing difficulty levels, as can be seen in the analysis.
Summary (Month 6 Figures):
1: 'Machines Online' was estimated assuming we bring 200 machines online per day until we reach allocation for that phase, and we have spaced out each phase by 6 weeks.
2: 'Total BTC mined' is calculated after adjusting for estimated Difficulty increases at a rate of 5% every 13 days, as per our analysis using the past 5 years' data. It is possible to see reduced difficulty levels like that of the previous 90 days (Total of 4.13% increase over period) but this has not been taken into consideration
3: We created 5 scenarios at different BTC price levels so that investors can judge the effect of price on profitability. The total amount of BTC mined per day is independent of the BTC price.
4: 'Gross Profit' is calculated net of energy costs and other variable costs.
5: 'Fixed costs' comprise expenses such as rent and ownership costs, staff and insurance.
6: 'Capital Expenditure' (Capex) consists of land and buildings, deposits, setup costs and mining equipment.
7: 'Cumulative cash generated' is essentially retained earnings before distributions to shareholders/ tokenholders and taxation. 'Return on Assets' (ROA) is calculated as cumulative cash generated divided by the month end Capex balance. We have not averaged the Capex balance and therefore figures are conservative.
8: 'Assumes immidiate liquidation of holdings'
Robert Graham CA(SA)
Chief Financial Officer
The Capitevo Group