China’s crackdown on cryptocurrency mining earlier this year is creating new opportunities for a recently launched local company.
With a $32.5 million private stock sale led by Beijing-based crypto mining hardware and solutions company Bitmain, Dallas’ Applied Blockchain, a mining firm, is getting into the cryptocurrency hosting space with plans to develop new facilities to accommodate the move.
“We had investigated whether we could do this, we found sites… and then we designed these,” said Applied CEO and Chairman Wes Cummings in an investor call. “We put a team together and then we showed this to Bitmain. They liked it enough that they wanted to invest and be a partner here.”
Applied is looking to bring online 500 megawatts of capacity through a five-year hosting agreement with Bitmain and partnerships with its other backers SparkPool and General Mining Research. The company said it will use the investment to purchase land and equipment to build hosting facilities for other crypto mining companies, as well as its own mining operations. Applied has identified three sites at undisclosed locations in the Upper Midwest. Since the company said about half of the power for the facilities will come from wind and solar, that means they will likely be located in a state with renewable industries.
“You’re looking for, number one, low-cost, stable power. Number two: a good climate. The cooler, the better,” Cummins said. “Three, we want to be in places that want our business to be there.”
The first facility, with 50 megawatts of capacity is expected to come online by the end of the year, with the others opening up operations within the next 24 months. At full capacity, Applied expects the hosting business to generate nearly $60 million in annual EBITDA. In addition to generating revenue, Cummins said the expansion into the hosting business will reduce Applied’s operational costs, as it moves away from third-party hosts it currently uses.
“The focus here is long-term contracts on both the supply and demand side, so I think that this is a stable revenue and income stream for the company, and it fits really well with our mining business,” Cummins said.
Cummins said he expects to see demand for hosting capacity to far exceed the amount Applied is looking to bring online with the facilities. Much of that is spurred by China’s crackdown on the crypto mining industry that started in May, which he said has forced miners to sell off assets or move operations to other countries, creating a demand for more than 11.5 gigawatts of capacity.
“This has created an opportunity for us, with our partners, to develop our own hosting operation here in North America. We’ve spent the last two months really assembling a team and identifying sites that will allow us to capitalize on the opportunity that’s been presented,” Cummins said. “We think that there’s a huge amount of demand coming out and we’re positioned well to capture that.”
The private placement from Bitmain, brings Applied’s total funding to nearly $50 million, following an oversubscribed $16.5 million private equity investment the company announced when it emerged from stealth mode in April. It used those funds to purchase GPU mining hardware, which it first deployed at the beginning of June.
Looking ahead, Cummins said Applied has other facility locations it’s eyeing in its pipeline. He also said Applied, which currently trades on the OTC Pink Open Market under the ticker symbol APLD, plans to uplist to a “major national exchange” later this year. As of around 2 p.m., Applied’s stocks were trading at $1.54 per share. They were trading at $1.28 per share when the markets closed on Friday.
“I think this is a fantastic move for the company into hosting,” Cummins said. “It complements our mining operation extremely well as a stable business on top of a fairly volatile, but right now highly profitable mining business, and significantly lowers the cost of our own mining.”
