Oddbean

You should interview the guys over at LM funding! They completely switched their legacy business into a btc mining company that holds bitcoin and uses btc as collateral to expand their mining operations! $LMFA Special situation #bitcoin company trading at a deep discount to NAV (BTC holdings/market cap ~140%) (Book value per share ~$10) (Current $lmfa price ~$2.7): $LMFA LM Funding, a company that has been going all in on #Bitcoin & Mining since 2021 & is continuing to expand mining operations: LMFA trades at a discount to Bitcoin holdings even when excluding cash and miners and has minimal debt relative to assets LM Funding holds 140 Bitcoin on their balance sheet worth ~ $12.8 Million (@ a btc price of $92k) w/ their avg cost of btc being ~$60k Their market cap is ~ $9.10 Million (@ $lmfa price of $2.7) They also have a few million dollars of cash and over $15M worth of miners Total assets on balance sheet per last earnings report (Q3 2024) ~ 36M Total liabilities ~ 8M Current assets ~ 11M Current liabilities ~ 3M Not only is LMFA undervalued they are also expanding to larger, and more cost effective, energy sites for their current and future mining operations. They are using loans backed by btc to do this (non dilutive - this allows them to hold their btc) they are employing a hodl, mine and stack strategy. LM Funding recently announced they are in the process of expanding operations (in addition to their existing 17.6MW sites): LMFA, “a cryptocurrency mining and technology-based specialty finance company, is pleased to announce the signing of an asset purchase agreement to acquire the business assets of a 15 MW mining site in Oklahoma” w/ options to further increase output to 60 MW & they are also waiting regulatory approval for even further expansion at a site in Texas for 72 MW. To put 15 MW into perspective this is enough energy to power 11,000-15,000 homes w/ the possibility of expanding to 60MW and 72MW in Texas - they currently run a 17.6MW site as they are in this expansion process. (The Oklahoma site and miners in transit should be fully operational by the end of Jan 2025) LM funding additionally gets their miners at wholesale/competitive pricing and will be cutting their cost of energy to 3-5 cents per MW from 7-8 cents, this will help to adjust with the difficulty of mining post 2024 halving. Something to keep in mind is that even if #bitcoin prices fall, $LMFA will be able to mine bitcoin at a faster pace because of less competition/ unprofitable miners going offline and the difficulty of mining going down with demand. In the other direction, $LMFA also benefits when bitcoin goes up because it holds 140 bitcoin on its balance sheet, it can fund more mining operations as its collateral grows & they can mine bitcoin. Win-Win scenario if you are assuming bitcoin is here to stay for the next several years/decades, which I think it will because it has established itself as the fastest growing asset class since its inception and now institutions are flowing in / nation states. Also people have a trillion dollar plus incentive now to keep the network running / secure & #bitcoin is flooded with very enthusiastic engineers / entrepreneurs. Added bonus: In the highly unlikely scenario where bitcoin fails or mining becomes too difficult for lmfa maybe say post 2028 or 2032 halving, the CEO mentioned that they are strategically picking their new mining sites in locations where they can also capitalize on the AI boom if needed (AI also loves cheap energy). LMFA’s sites are in areas with high talent, the sites have cooling systems in place for GPUs and water systems…another win-win scenario “Heads I win, tails I don’t lose much” -Mohnish Pabrai Why is lmfa so cheap? 1. It used to be (mostly) a lending company to nonprofits such as HOA communities so many people in the market don’t know it’s #bitcoin business is a much bigger operation than its old yet still existent legacy business. 2. It’s a microcap stock (low mrkt cap) so these get a lot less buzz than mid/mega caps. Conclusion: large upside with minimal downside, 40-70% discount to assets. Value of btc per share alone ~ $3.8 Book value per share (btc+cash+ other assets - liabilities / shares outstanding) ~$10 Current price ~ $2.7 PS. ~60% insider ownership which means they have a big incentive to grow this company. https://www.lmfunding.com/investors/news-events/press-releases