From the desk of the CFO: Financial update 22 October 2018
Dear Token-holders and Community Members In this update I will be presenting a bullish scenario regarding project viability and profitability. It’s been little over three weeks since our previous update, and little has changed from a macro perspective. The Bitcoin market has, except for a short-lived rally on the 15th of October 2018, retraced to range-bound levels, around $6500. The rally on the 15th October may be attributed to the unpegging of Tether to the USD, which resulted in market participants dumping their Tether for BTC. From Bitcoin’s perspective, this demonstrates market dominance and that crypto investors continue to deem Bitcoin as the crypto safe-haven.
We will be looking at the following scenario’s and its impact on profitability:
1. Base case – BTC $6580;
2. Daily increase in the BTC price of 0.02%;
3. Daily increase in the BTC price of 0.03%;
4. Daily increase in the BTC price of 0.04%;
This forecast essentially assumes trend reversal and a steady increase in price up to and beyond the all-time-high of $20k USD. Note that we have labelled the forecast in terms of months, being Month 1, Month 2 etc. and have avoided the inclusion of specific start dates as this is included under the CEO’s report. We have however kept the scaling in of machines for Phase 1A to Phase 3 as set out in the previous update released on 28 September 2018. We have also adjusted all variables such as changes in difficulty because of new market information. We note that difficulty decreased for the second time this year, by 3.7%, in the latest adjustment made on 19 October 2018. We are seeing the rate of change in difficulty begin to cool-down, arguably because of the prolonged depression in the Bitcoin price. It would however be unwise to speculate at this point that this is the beginning of a new trend. Finally, the ROI is calculated as the total cumulative cash generated divided by the total Capex at each period end. This is essentially the Return on Assets (excluding cash) from the business’ perspective.
The results of this analysis are documented in the table below and the highlights may be summarized as follows, for each of the scenarios tested:
1. Base case – BTC $6580: As per the base case, the latest available machines on the market begin to run at a loss in month 8. We have stated on several occasions, that MoonLite is in a favorable position in that we are still busy with the build-out and have therefore not been negatively affected by the bear market conditions, quite the opposite holds true. We are accessing better equipment at cheaper prices, and the probability that we will be hashing at higher BTC prices increases each day as the market finishes its correction.
2. Daily increase in the BTC price of 0.02%; Under this assumption, BTC increases in price on average by approximately $660 per month, and reaches $14,2k in month 12, which is realistic and conservative. At this BTC price, our machines are all profitable and we would have recovered 21.56% of total capital expenditure. Token-holders are primarily concerned with receiving dividends as well as growth in the price of the MNL token. A scenario like this is important to showcase token-holders the risks involved in distributing dividends prematurely when not enough capital has been recovered. Ideally BTC price increases will be more aggressive than this once we begin hashing so that we may mitigate as much risk as possible before we distribute capital. It is also worth noting to token-holders that an undistributed dividend, held in cash reserve, will be reflected in the price of the MNL token. So even if MNL does not physically pay a dividend, the increase in cash/ equity in the business should correspond as an increase in the token price and therefore token-holders still benefit, albeit indirectly. Management will, as part of its risk management strategy, consider declaring dividends and holding these in reserve until such time sufficient risk has been mitigated to warrant distribution.
3. Daily increase in the BTC price of 0.03%; Under this assumption, BTC increases in price on average by approximately $1 250 per month, and reaches $20,9k in month 12. At this BTC price we would have recovered 40.91% of total capital expenditure.
4. Daily increase in the BTC price of 0.04%; Under this assumption, BTC increases in price on average by approximately $2 130 per month, and reaches $30,8k in month 12. At this BTC price we would have recovered 66.23% of total capital expenditure.
Scenario 3 and 4 offer substantial returns to investors and increases the expected lifespan of our machines and Return on Assets significantly. These scenarios are realistic, we have seen how quickly the crypto market can take off. Once we move away from these lows it is expected that we will not see these prices again, and with our bullish bias, we expect a medium term (6 month) breakout to the upside. It is an encouraging proposition to be able to recover 40.91% - 66.23% of total Capex within a 12-month period, during scaling. This is extraordinary for any business model.
Conclusion We could allocate probabilities to the above scenarios, together with the base case presented, and conclude that MoonLite is well positioned to profit in the cryptocurrency mining sector for the following reasons: 1. We are cash rich and have mitigated bear market risks from an operational and equipment price perspective; 2. We expect a market turnaround in the medium term, to the upside; 3. We are geographically situated in a preferential climate with cheap renewable energy; 4. We have access to the best available equipment at the best prices; 5. We have strong community and investor support; and 6. an experienced team of professionals leading the project. We hope that you have enjoyed this update. Thank you for joining us on this journey!
Robert Graham CA(SA)
Chief Financial Officer
The Capitevo Group