Gryphon Digital Mining, a company that has made significant strides in the rapidly evolving bitcoin mining and AI computing landscapes, is positioning itself as a force to be reckoned with. Founded in 2020, Gryphon has quickly established itself as a leader in low-cost, environmentally sustainable bitcoin mining operations, while also making strategic moves to capitalize on the burgeoning AI computing market.
Business Overview and History: Gryphon Digital Mining was incorporated in October 2020 under the name Ivy Crypto, Inc., with its headquarters located in Las Vegas, Nevada. The company initially focused on operating a digital asset mining operation, primarily mining Bitcoin, using specialized computer hardware equipped with application-specific integrated circuit (ASIC) chips known as miners. In April 2022, the company formed a wholly-owned subsidiary, Gryphon Opco I LLC, to engage in its mining activities.
In February 2024, Ivy Crypto, Inc. completed a reverse merger with Akerna Corp., a software-as-a-service (SaaS) provider serving the cannabis industry. As a result of the merger, the combined entity adopted the name Gryphon Digital Mining, Inc. and its common stock began trading on the Nasdaq exchange under the ticker symbol GRYP. This transaction was treated as a reverse recapitalization, with Ivy Crypto being the accounting acquirer. Upon completion of the merger, the former Ivy Crypto stockholders owned approximately 92.5% of the outstanding capital stock of the combined company.
Prior to the merger, Akerna had committed to exiting its SaaS business serving the cannabis industry, effectively shifting its business strategy. The reverse merger resulted in Ivy Crypto becoming a wholly-owned subsidiary of the renamed Gryphon Digital Mining, Inc.
In 2022, Gryphon entered into a significant debt arrangement, obtaining a loan denominated in Bitcoin from Anchorage Lending CA, LLC. This loan was secured by certain of Gryphon's mining equipment and software rights. Over time, as the price of Bitcoin increased, the notional amount owed on this loan also grew, creating a significant liability on Gryphon's balance sheet.
Gryphon's core business model revolves around the mining of Bitcoin, where the company's miners contribute computing power (hashrate) to the Bitcoin network to validate transactions and secure the blockchain in exchange for block rewards, primarily in the form of Bitcoin. As of September 30, 2024, Gryphon operated approximately 8,800 ASIC miners, generating a monthly average hashrate of 920 PH/s.
The company operates in a single business segment - digital asset mining, primarily focused on Bitcoin mining. Gryphon's revenue model is to mine and hold bitcoin, selling only the amount necessary to cover operating expenses and reinvest in operational expansion. The company's mining operations are conducted at third-party hosted mining data centers located in New York.
Financial Performance and Ratios: Gryphon's financial performance has been mixed in recent quarters. For the nine months ended September 30, 2024, Gryphon generated $16.69 million in mining revenues, up from $14.99 million in the same period in 2023. This increase was primarily due to an increase in the number of miners in operation as well as an increase in the average value of bitcoin.
However, the company reported a net loss of $5.9 million in Q3 2024, compared to a net loss of $8.1 million in the same period the previous year. The company's adjusted EBITDA, a key metric for cryptocurrency miners, stood at a negative $2.5 million for Q3 2024, an improvement from the negative $4.7 million reported in Q3 2023.
During the third quarter of 2024, Gryphon mined approximately 61 bitcoins, down from 176 bitcoins mined in the third quarter of 2023. This decrease was due to a combination of factors including an increase in the number of miners in operation and an increase in the Bitcoin network hashrate.
The company's mining revenues decreased to $3.69 million for the three months ended September 30, 2024, from $5.19 million for the same period in 2023. This decrease of $1.50 million occurred despite an increase in the number of miners in operation and a higher average value of Bitcoin. As of September 30, 2024, the company had approximately 8,800 miners compared to approximately 8,300 as of September 30, 2023. The average value of Bitcoin for the three months ended September 30, 2024, was $61,000 compared to $28,000 for the same period in 2023, an increase of $33,000, or 118%.
Management services revenue, which related to the Sphere MSA, decreased to $0 for the three months ended September 30, 2024, compared to $288,000 for the same period in 2023. This decrease was due to Sphere 3D delivering a termination notice to the company on October 6, 2023.
Cost of revenues for the digital asset mining segment, which includes direct costs such as electricity and hosting, was $12.25 million for the nine months ended September 30, 2024, up from $9.54 million in the same period in 2023. The increase was primarily attributable to the increase in the number of miners deployed, higher energy costs, and an increase in the Bitcoin network hashrate.
Gryphon's breakeven costs per Bitcoin in Q3 2024 were $59,213, compared to $21,501 in Q3 2023. The increase in breakeven costs was due to the Bitcoin halving event in 2024, where the Bitcoin rewards decreased by 50%, combined with the increase in global hashrate.
Liquidity: As of September 30, 2024, Gryphon reported $368,000 in cash and cash equivalents, $0.6 million in Bitcoin holdings, and $19.27 million in debt related to a note denominated in Bitcoin. The company's current ratio, a measure of liquidity, stood at 0.06, indicating potential solvency concerns. The quick ratio was also 0.06, as the company does not have significant inventory.
The company's Debt/Equity ratio could not be calculated due to negative equity. Gryphon does not appear to have any available credit lines.
Debt Restructuring and Strategic Initiatives: In a significant move, Gryphon recently completed a debt restructuring with Anchorage Digital, a leading cryptocurrency lending and custody platform. The company converted $13 million of debt into equity and pre-funded warrants at a substantial premium to the current market price, while restructuring the remaining $5 million on favorable terms, including a 4.25% interest rate and a three-year repayment period.
This strategic debt restructuring has strengthened Gryphon's balance sheet, reduced its outstanding debt by over 70%, and established Anchorage as the company's largest shareholder. Additionally, Anchorage's co-head, Dan Grigorin, has joined Gryphon's Board of Directors, providing valuable industry expertise and strategic guidance.
Alongside its core bitcoin mining operations, Gryphon has set its sights on the rapidly growing AI computing market. The company believes that its expertise in securing low-cost power and deploying large-scale computing infrastructure can be leveraged to capitalize on the surging demand for high-performance computing resources in the AI space. While still in the early stages, Gryphon's management team has outlined plans to make meaningful progress in the AI hosting segment through both organic development and potential strategic acquisitions.
The company also plans to relocate its current mining fleet to a new location with significantly lower power costs, with an announcement expected by the end of 2024. This move is expected to improve the company's operational efficiency and profitability.
Leadership Changes and Legal Matters: On September 17, 2024, Robby Chang was terminated as Chief Executive Officer and President of Gryphon for cause, with immediate effect, by the Board. Mr. Chang remains a member of the Board.
On October 21, 2024, the company received notice that both it and Ivy Crypto, Inc., a wholly-owned direct subsidiary of the company, have been named as defendants in a complaint filed by Mr. Chang in the Ontario Superior Court of Justice in Canada, alleging wrongful termination. Gryphon intends to defend this matter vigorously.
On October 22, 2024, the Board created a special committee to oversee the company's handling of the claim, comprised of Steve Gutterman, Jimmy Vaiopoulos, Dan Tolhurst, and Jessica Billingsley.
Industry Trends: The global Bitcoin mining hashrate has shown a consistent upward trend, with sequential increases of 21.6%, 19%, 6.8%, and 4.3% over the last four quarters ending September 30, 2024. This increase in the global hashrate has led to fewer Bitcoins being mined for the same amount of energy consumption, putting pressure on the company's breakeven costs.
Risks and Challenges: Gryphon Digital Mining faces several risks and challenges that could impact its future performance. The highly competitive nature of the bitcoin mining industry, coupled with the increasing global hashrate and rising power costs, could put pressure on the company's profitability. Additionally, the volatility of Bitcoin prices and the potential for regulatory changes in the cryptocurrency sector pose significant risks.
The company's recent debt restructuring, while a positive step, still leaves it with a substantial debt burden and potential solvency concerns, as evidenced by its low current ratio. Gryphon's ability to execute on its AI computing strategy and diversify its revenue streams will be crucial in mitigating these risks and achieving long-term sustainable growth.
Conclusion: Gryphon Digital Mining has emerged as a dynamic player in the rapidly evolving bitcoin mining and AI computing landscapes. The company's strategic debt restructuring, leadership changes, and ambitious plans to expand into the AI hosting market demonstrate its commitment to positioning itself for long-term success. However, the company must navigate the challenges of the highly competitive bitcoin mining industry and address its solvency concerns to fully capitalize on the opportunities ahead. As Gryphon continues to execute on its growth strategy, investors will be closely monitoring the company's ability to deliver on its operational and financial targets, particularly in light of the recent management changes and ongoing legal matters.