Business Overview and History
Gryphon Digital Mining, Inc. (GRYP) is an innovative venture in the bitcoin and AI space, dedicated to bringing digital assets to the market through its core bitcoin mining operations and strategic expansion into high-performance computing (HPC) for AI applications. The company has undergone a transformative journey over the past year, strengthening its leadership team, bolstering its financial position, and laying the groundwork for significant growth in both its core and emerging business segments.
Gryphon Digital Mining, Inc. was originally incorporated under the name Ivy Crypto, Inc. in October 2020, with the primary focus of mining Bitcoin. The company initiated its mining operations in September 2021 after receiving its first batch of 600 Bitmain S19j Pro Antminers. Since then, Gryphon has significantly expanded its mining fleet to over 8,800 units as of September 2024.
In February 2024, Ivy Crypto underwent a reverse merger with Akerna Corp., a Nasdaq-listed company that previously provided software solutions for the cannabis industry. This strategic move resulted in the company becoming publicly traded under the new name Gryphon Digital Mining, Inc., with its shares listed on the Nasdaq exchange under the ticker symbol GRYP. Prior to the merger, Akerna had already committed to exiting the cannabis software business, paving the way for Gryphon to become the primary operating entity.
The company faced some early challenges in its operations. In late February 2023, a security incident resulted in the unauthorized transfer of 26 bitcoins, valued at approximately $560,000 at the time, from Gryphon's wallet. Despite efforts by law enforcement, the stolen funds could not be recovered, and Gryphon subsequently compensated Sphere 3D for the loss.
Legal issues also arose in April 2023 when Sphere 3D filed a lawsuit against Gryphon, alleging various breaches related to their master services agreement. However, this dispute was ultimately resolved in early 2025 with a mutually acceptable settlement, allowing Gryphon to refocus on its core business operations.
As part of its growth strategy, Gryphon entered into a hosting agreement with Coinmint, a well-established operator of renewable-energy data centers. This partnership enabled Gryphon to host its mining equipment at Coinmint's facility in Massena, New York, leveraging the location's access to low-cost, renewable hydroelectric power.
As of September 30, 2024, Gryphon operated approximately 8,800 bitcoin ASIC mining computers, or miners, installed at third-party hosted mining data centers in New York. The company's mining operations consume approximately 28 megawatts of power, primarily sourced from renewable hydroelectric energy.
In February 2024, Gryphon completed a reverse merger with Akerna Corp., a provider of software-as-a-service (SaaS) solutions for the cannabis industry. This transaction resulted in Gryphon becoming a publicly traded company, with its common stock listed on the Nasdaq Capital Market under the ticker symbol "GRYP." Prior to the merger, Akerna had committed to a strategic shift and complete exit from the cannabis SaaS business, paving the way for Gryphon to become the surviving and operating entity.
Strengthening the Foundation for Growth
Over the past several months, Gryphon has taken significant steps to create a strong foundation for future growth. The company has made key additions to its leadership team, including the appointments of Steve Gutterman as Chief Executive Officer, Jimmy Vaiopoulos as Chairman of the Board, and the continued service of Sim Salzman as Chief Financial Officer.
The new management team brings deep expertise and experience in the cryptocurrency mining and broader technology sectors, which the company believes will be instrumental in executing its growth strategy. Notably, the appointment of Dan Grigorin from Anchorage Digital to Gryphon's Board of Directors has also been a crucial development, as the company seeks to leverage Anchorage's industry knowledge and relationships.
In addition to strengthening its leadership, Gryphon has also undertaken a transformative debt restructuring with Anchorage Digital. This strategic initiative has significantly improved the company's financial position by converting $13 million of debt into equity at a substantial premium to the stock price, while restructuring the remaining $5 million on highly favorable terms. The monthly interest payment on the $5 million debt has been reduced to just $17,708, a significant decrease from the previous obligation.
The debt restructuring not only strengthens Gryphon's balance sheet but also demonstrates the confidence of a sophisticated investor, Anchorage Digital, in the company's potential. Anchorage has now become Gryphon's largest shareholder and has a representative on the Board of Directors, positioning the company to benefit from the investor's industry expertise and strategic guidance.
Diversifying into AI Infrastructure Hosting
While Gryphon remains laser-focused on methodically building its core bitcoin mining business, the company is also keenly aware of the transformational potential in the rapidly evolving artificial intelligence (AI) space. The company believes that it is well-positioned to capitalize on the growing demand for AI computing power, leveraging its expertise in securing low-cost power and operating large-scale computing infrastructure.
Gryphon's business model, which is centered around securing low-cost power, plugging computers into that power, and asking those computers to perform valuable computing work, is equally applicable to both bitcoin mining and AI computing. This synergy has inspired the company to pursue strategic opportunities in the HPC and AI infrastructure hosting verticals, alongside the continued development of its core bitcoin mining operations.
In the coming months, Gryphon plans to make meaningful progress towards the AI hosting space, both through organic development and potentially strategic mergers and acquisitions. The company recognizes the need to move with purpose to seize the current window of opportunity in the rapidly evolving AI market, while also maintaining its steady build-out of the mining business.
Financial Performance and Outlook
For the third quarter of 2024, Gryphon reported mining revenues of $3.7 million, down from $5.2 million in the same period of the prior year. The company mined approximately 61 bitcoins during the quarter, compared to 176 bitcoins in Q3 2023. The decrease in mining revenues and bitcoin mined can be attributed to a combination of factors, including the Bitcoin network's halving event in 2024, which reduced block rewards by 50%, and the increase in global hashrate, which has led to fewer bitcoins being mined for the same amount of energy consumption.
Gryphon's breakeven cost per bitcoin in Q3 2024 was $59,213, compared to $21,501 in the prior-year quarter. The increase in breakeven costs reflects the impact of the halving event and the growing global hashrate, which have put upward pressure on the company's operational costs.
Despite the challenges in the mining business, Gryphon reported an improvement in its adjusted EBITDA, which stood at approximately negative $2.5 million for the three months ended September 30, 2024, compared to negative $4.7 million in the same period of 2023. The company recognized a net loss of $5.9 million in Q3 2024, which included $3.2 million in net non-cash expenses.
For the nine months ended September 30, 2024, Gryphon mined approximately 287 bitcoins, compared to 575 bitcoins mined in the same period of 2023. The decrease in bitcoin mined was primarily attributable to an increase in the bitcoin network hashrate, as well as higher energy costs. However, the value of each bitcoin mined increased significantly, with the average value per bitcoin rising from $26,000 in the first nine months of 2023 to $60,000 in the same period of 2024.
This increase in the value of each bitcoin mined helped drive Gryphon's mining revenues, which grew from $15 million in the first nine months of 2023 to $16.7 million in the corresponding period of 2024, an 11.4% year-over-year increase. Despite the decline in the number of bitcoins mined, the higher average price per bitcoin resulted in an overall increase in mining revenues for the company.
Cost of revenues for the mining operations segment also increased, rising from $9.5 million in the first nine months of 2023 to $12.3 million in the same period of 2024. This 28.4% increase was primarily due to the higher deployment of miners, the increased bitcoin network hashrate, and rising energy costs.
In addition to its mining operations, Gryphon previously provided management services to Sphere 3D under a master services agreement (MSA). However, on October 6, 2023, Sphere 3D delivered a termination notice to Gryphon regarding the MSA. As a result, Gryphon's management services revenue decreased from $844,000 in the first nine months of 2023 to $0 in the corresponding period of 2024.
Overall, Gryphon's total revenues for the nine months ended September 30, 2024, were $16.7 million, up from $15.8 million in the same period of the prior year. This 5.4% year-over-year increase was driven by the growth in mining revenues, partially offset by the loss of management services revenue.
The company's net loss for the first nine months of 2024 was $21.7 million, compared to a net loss of $17.6 million in the corresponding period of 2023. The increased net loss was primarily due to higher general and administrative expenses, including $3.7 million in investor and public relations expenses related to the company's merger with Akerna, as well as a $7.1 million change in the fair value of the company's notes payable.
For the full fiscal year 2023, Gryphon reported annual revenue of $21.1 million, with a net loss of $79.1 million. The company's annual operating cash flow for 2023 was negative $10.9 million, while free cash flow stood at negative $15.3 million.
Liquidity and Financial Position
As of September 30, 2024, Gryphon's balance sheet reported approximately $0.4 million in cash and cash equivalents, $0.6 million in bitcoin, and $19.3 million due for the note denominated in bitcoin. However, the company has since completed the previously mentioned debt restructuring with Anchorage Digital, which has significantly strengthened its financial position and reduced its debt obligations.
As of December 31, 2023, Gryphon had a cash balance of $915,000 and a debt-to-equity ratio of -1.02. The company had a $14.9 million note payable outstanding, secured by mining equipment and certain agreements, with an annual interest rate of 6%. Gryphon's current ratio and quick ratio both stood at 0.55 as of December 31, 2023, indicating potential liquidity challenges.
The company has financed its operations primarily through equity raises, borrowings, and cash flow from its digital currency mining operations but expects to require additional capital to fund its ongoing operations and growth strategies.
Outlook and Risks
While Gryphon continues to face challenges in its core bitcoin mining operations, the company believes it has taken important steps to position itself for long-term success. The strengthening of the leadership team, the debt restructuring, and the strategic focus on diversifying into the AI infrastructure hosting space provide a solid foundation for growth.
However, the company is not without its risks. The highly competitive and rapidly evolving nature of the cryptocurrency mining industry, the volatility in bitcoin prices, and the company's ability to secure reliable and cost-effective power sources, among other factors, could all impact Gryphon's future performance.
Additionally, the company's foray into the AI infrastructure hosting market is a new and untested endeavor, which brings its own set of risks and challenges. The ability to successfully execute on this strategy and capitalize on the growing demand for AI computing power will be crucial for Gryphon's long-term success.
Gryphon is actively looking to secure low-cost power sources, with plans to make significant announcements about relocating their mining fleet by the end of 2024. The company is pursuing a two-pronged strategy - continuing to build out their core Bitcoin mining operations, while also aggressively pursuing opportunities in the AI infrastructure hosting space.
It's worth noting that the bitcoin mining industry has seen a compound annual growth rate (CAGR) of approximately 150% over the past 5 years, driven by increased adoption of cryptocurrencies and growth in the overall blockchain ecosystem. This industry trend presents both opportunities and challenges for Gryphon as it navigates the competitive landscape.
Recent Developments and Challenges
Gryphon has faced some recent challenges in its leadership and legal matters. On September 17, 2024, Robby Chang was terminated as Chief Executive Officer and President of GRYP for cause. Subsequently, on October 21, 2024, GRYP was named as a defendant in a complaint filed by Robby Chang in the Ontario Superior Court of Justice in Canada, alleging wrongful termination.
Additionally, the ongoing litigation with Sphere 3D, which filed a lawsuit against GRYP on April 7, 2023, in the U.S. District Court for the Southern District of New York, remains unresolved. The lawsuit alleges breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty related to the Sphere 3D MSA.
Conclusion
Gryphon Digital Mining has undergone a transformative journey over the past year, laying the groundwork for future growth and value creation. The company's strategic initiatives, including the strengthening of its leadership team, the debt restructuring, and the diversification into AI infrastructure hosting, position it to navigate the evolving digital asset landscape and capitalize on emerging opportunities.
While challenges persist in the core bitcoin mining business, Gryphon's commitment to operational efficiency and its exploration of new revenue streams suggest a path forward that could generate substantial value for shareholders. The company believes they have the right team, strategy, and balance sheet strength to drive significant value creation across these two high-growth verticals.
As the company continues to execute on its strategic plan, investors will closely monitor its ability to drive growth, maintain a strong financial position, and successfully transition into the AI computing space. The coming months will be crucial as Gryphon works to secure low-cost power sources, optimize its mining operations, and make inroads into the AI infrastructure hosting market.