Bit Digital posted a $107.2 million quarterly loss, but the headline number doesn’t tell the whole story.
The crypto-focused company actually grew its revenue by 15 percent from the previous quarter to $32.1 million, helped mainly by its cloud services business. The problem was that large non-cash losses and other non-operating items dragged its bottom line sharply lower.
About $86 million of the reported loss came from digital asset movements and other non-operating items. In other words, a significant chunk of the loss was tied to accounting movements rather than cash actually leaving the business.
Bit Digital Ethereum stack continues to grow
Bit Digital also continues to hold a huge amount of Ether. The company had around 164,310 ETH at the end of June and did not sell any of it during the quarter. That makes its cryptocurrency treasury a major part of its identity, and, increasingly, a major part of the debate around its valuation.
CEO Sam Tabar said investors currently view Bit Digital largely as a passive digital asset treasury. The company believes that perception does not fully reflect the businesses it is building, particularly its cloud services operations.
The disconnect is now something the board is looking at. Bit Digital has been trying to build a business that goes beyond simply holding cryptocurrency. Its cloud services segment has become an increasingly important source of revenue, and the latest quarter showed that the business is still growing.
But investors appear to be paying much more attention to the company’s ETH holdings than to that growth.
That can create a difficult situation for a company like Bit Digital. A large crypto treasury gives shareholders significant exposure to Ether, but it can also make the stock behave more like a crypto asset than a traditional operating company.
When ETH prices move sharply, the value of Bit Digital’s holdings can change significantly. Those movements can also create large swings in reported earnings, even when the company doesn’t sell any of its cryptocurrency.
Reason behind the losses
Bit Digital’s roughly $86 million hit from non-cash digital asset movements and other non-operating items helped push the company into a steep loss. But because much of that impact was non-cash, it doesn’t necessarily mean the company burned through that amount of money during the quarter.
The fact that Bit Digital didn’t sell any of its ETH also suggests that management continues to see value in maintaining its large crypto position.
At the same time, the growth in cloud revenue could give the company a way to diversify its business and reduce its dependence on simply holding digital assets.
That leaves Bit Digital with something of an identity problem.
Is it primarily an Ethereum treasury company, or is it a growing technology business with a substantial crypto treasury?
Right now, CEO Sam Tabar believes the market is leaning too heavily toward the first view.
The board is also considering ways to close that valuation gap and get investors to place more value on Bit Digital’s operating businesses. For the company, that could be just as important as its next financial results.
Bit Digital has the ETH, and its cloud business is growing. The bigger challenge may be convincing the market that it is more than a wallet holding 164,310 ETH.
