Correspondence 0001213900-23-060252 from Bitfarms Ltd (BITF) (CIK 0001812477) (BITF)
Bitfarms Ltd (BITF) (CIK 0001812477)
Date: July 27, 2023 · CIK: 0001812477 · Accession: 0001213900-23-060252
AI Filing Summary & Sentiment
File numbers found in text: 001-40370
Referenced dates: June 26, 2023
Letter
Securities and Exchange Commission Division of Corporation Finance Office of Crypto Assets Form 40-F for the Fiscal Year Ended December 31, Filed March 21, 2023 File No. 001-40370
Re: Bitfarms Ltd
Dear Ms. Tillan and Mr. Sundwall,
On behalf of Bitfarms Ltd (the “Company”), I am responding to the comments contained in the letter dated June 26, 2023 (the “Letter”) from the staff of the Securities and Exchange Commission (the “Commission” and, the staff of the Commission, the “Staff”) to Jeffrey Lucas, Chief Financial Officer of the Company, relating to the Company’s Form 40-F for the fiscal year ended December 31, 2022 (the “2022 40-F”). The responses contained herein are keyed to the numbers of the comments in the Letter, which appear in italics below for convenience of reference. Unless otherwise indicated, capitalized terms used herein have the meanings assigned to them in the 2022 40-F. As an initial matter, the Company notes that the only digital assets mined, purchased and sold by the Company during the years ended December 31, 2021 and 2022 as well as year to date in 2023 were Bitcoin.
In addition, as noted in further detail below, the following appendices are included with this response to the information requested in the Letter:
● Appendix A – Mining pool service agreement
● Appendix B – Mining pool payout methodology
1. You classify proceeds from the sale of digital assets mined within cash related to operating activities. Please tell us how you considered IAS 7.16(b) which gives cash receipts from sales of intangible assets as an example of cash flows arising from investing activities. Provide us the general time frame you hold cryptocurrencies mined, including the average, maximum and minimum time you held them during the periods presented.
Response: IAS 7.14 describes cash flows from operating activities as being primarily derived from the principal revenue-producing activities of the entity. Therefore, cash flows from operations generally result from the transactions and other events that enter into the determination of profit or loss.
In applying this principle for classification purposes, the Company classifies cash flows from the sale of Bitcoin based on the transaction or event that originally gave rise to the Bitcoin and how it was presented on the Consolidated Statements of Financial Position. Specifically:
● Non-cash consideration, i.e., Bitcoin, that is received in exchange for its computational power as part of the core of the Company’s operating activities and the sale of the associated Bitcoin that occurs within the Company’s normal operating cycle are reported among cash flows from operating activities.
● Bitcoin that the Company purchases and subsequently sells are reported among cash flows from investing activities since the generation of the Bitcoin did not arise from the Company’s operating activities (the Bitcoin was not received in exchange for its computational power) but rather from actions conducted expressly as an investment activity.
For the year ending December 31, 2022, the Company presented the monetization of Bitcoin in both operating and investing sections of the Consolidated Statements of Cash Flows given that both of the categories described above were applicable.
IAS 7.16(b) refers to cash receipts from sales of property, plant and equipment, intangibles and other long-term assets, which all represent long-term assets. As described in the response to Comment 4 below, the Company considers Bitcoin to be a current asset due to its liquid nature and the presence of ready markets to exchange Bitcoin for cash, as well as the Company’s express intention to use the Bitcoin to meet the Company’s operating cash requirements as the need arises. Accordingly, given the character and intended application of the Bitcoin, the Company believes that presenting Bitcoin as a current asset is a more appropriate characterization of its actual application. For these reasons, the Company does not believe its treatment of Bitcoin should be within the scope of IAS 7.16(b) except where the Company purchases Bitcoin.
The Company has benchmarked its presentation against the presentation in the financial statements by its peers in their filings with the Commission and observed that its approach is consistently utilized by others within the industry and under International Financial Reporting Standards (“IFRS”).
As for the general time frame the Company holds its Bitcoin mined, the Company does not track, nor would it be practicable or useful for the Company to track, which of its Bitcoin are held and which of its Bitcoin are sold since they are a “fungible” asset that is accumulated in the same digital wallets. The Company does, however, maintain records concerning the Bitcoin held in treasury versus the daily production sold and clarifies for the Staff that:
● The minimum time the Company held Bitcoin during the periods presented was a few hours, since the Company is primarily selling on a daily basis the majority of its daily production.
● The maximum time the Company held Bitcoin during the periods presented was approximately 12 months, as the Company began accumulating Bitcoin in early 2021 and commenced selling it in early 2022 as cash needs arose. However, from early 2022 to the current date, the Company typically sells the majority of its Bitcoin mined on a daily basis primarily in order to fund working capital needs.
● The average time the Company held Bitcoin during the years ended December 31, 2021 and 2022 was approximately 11 months and 1 month, respectively. The average time Bitcoin was held, as presented here, was based on the turnover calculation described in the response to Comment 4.
2. Please provide us your analysis supporting your revenue recognition policy for your mining pool participation activities. In your response, where appropriate, reference for us the authoritative literature you relied upon to support your accounting:
● Provide us a representative sample contract and cross reference your analysis to the specific provisions of that contract.
● Tell us how the amount of consideration is determined under the contracts and the payment methods.
● Tell us why you measure the non-cash consideration you receive for your mining activities based on the price quoted on the day you receive the digital assets.
● Relate your response to your disclosure that revenues from cryptocurrency mining are recognized when the computing power is provided to the mining pool.
Response: In response to the Staff’s comment and in support of the Company’s revenue recognition policy for its mining pool participation activities, which are summarized below, the Company has included as Appendix A hereto a copy of its sole mining pool service agreement (the “service agreement”), which the Company has redacted because the redacted information is both (i) not material and (ii) would be competitively harmful if publicly disclosed. The Company agrees to furnish supplementally an unredacted copy of the service agreement to the Commission upon its request. Under the service agreement, the consideration paid to the Company is determined according to the Full-Pay-Per-Share “FPPS” payout scheme (as explained in more detail in Appendix B hereto). The Bitcoin earnings are derived from the Company’s allocated proportional hashrate contribution to the mining pool, assessed over a 24-hour period, and disbursed daily. The daily Bitcoin earnings consist of two distinct components:
a) The Company’s share of the expected block rewards; and
b) The Company’s share of the expected transaction fees.
Bitfarms’ agreement with the mining pool does not fit into the four exceptions of IFRS 15.5 which would require the Company to account for its earnings from its mining pool participation activities outside of IFRS 15; therefore, the contract is accounted for within the scope of IFRS 15, which requires the Company to:
1) Identify the contract.
a. This contract is identified as the mining pool service agreement (Appendix A), which has commercial substance.
b. The Company transfers its hashrate and receives Bitcoin based on the FPPS payout scheme (Appendix B).
2) Identify the performance obligations.
a. The Company provides the mining pool with computing power (i.e., hashrate) for non-cash consideration (i.e., Bitcoin).
3) Satisfy the performance obligations.
a. The Company’s hashrate is transferred to the mining pool over a 24-hour period, which is used to find the block in order to receive the block reward and transaction fees.
4) Determine the transaction price.
a. The Company measures the Bitcoin earned and received from mining activities based on the price quoted on the day the Bitcoin are received as that measurement time is a few hours after the Company completes its performance obligation of providing its hashrate for 24 hours. The mining pool disburses to the Company the Bitcoin earned on a daily basis.
3. In future filings, please revise to disclose the following:
● The time frame of when the revenue is deposited into your wallet.
● Whether the digital assets are received in whole or fractions.
Response: The Company acknowledges the Staff’s comment and will include the requested disclosure in its future annual reports and any other future filings with the Commission where a detailed description of its accounting principles is included. In terms of the time frame of when the revenue is deposited into the wallet, this occurs on a daily basis, and the Bitcoin earned is received in full, but can be distributed in fractions of Bitcoin. The Company is currently in the process of drafting its proposed disclosure, which has not yet been finalized at the date of this response letter.
4. You classify your digital assets and pledged digital assets as current assets because management determined that the digital assets have markets with sufficient liquidity to allow conversion within your normal operating cycle. Please tell us how your classification of digital assets as current assets considered IAS 1, including paragraphs 66 - 68. In your response, at a minimum, address each of the following:
● For digital assets held at December 31, 2021 and 2022, tell us the average length of time the assets have been held and how frequently the assets turn over, explaining how you calculated this turnover.
● Tell us your consideration for carrying a portion of your holdings that are not expected to be sold for cash as long-term.
Response: The Company believes its Bitcoin adheres to the criteria to be classified as current assets as per paragraph 66 of IAS 1, which states that an entity shall classify an asset as current when:
● it expects to realise the asset, or intends to sell or consume it, in its normal operating cycle;
o The Company sells its computing power, gets rewarded in Bitcoin and sells its Bitcoin to cover costs and expenses during its normal operating cycle. The Bitcoin are sold when needed for working capital purposes and, accordingly, should be classified as short-term.
● it holds the asset primarily for the purpose of trading;
o The Company considers its Bitcoin to be a liquid asset, as it can be readily converted to cash as needed.
● it expects to realise the asset within twelve months after the reporting period; or
o The Company’s December 31, 2022 year-end balance and turnover demonstrated that the Company expected to realize the asset within the next 12 months as a source of funds for operations.
● the asset is cash or a cash equivalent (as defined in IAS 7) unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
o Bitcoin is not considered cash or a cash equivalent as defined in IAS 7 due to its price volatility.
The majority of the Company’s mined Bitcoin are sold within an operating cycle to cover its costs and expenses, which is supported by the turnover calculation below. The remaining Bitcoin are held within the Company’s treasury fo
Show Raw Text
CORRESP
1
filename1.htm
July
27, 2023
Securities
and Exchange Commission
Division
of Corporation Finance
Office of
Crypto Assets
100 F Street,
NE
Washington,
D.C. 20549
Attn: Kate
Tillan and Rolf Sundwall
Re:
Bitfarms Ltd
Form 40-F for the Fiscal Year Ended December 31,
2022
Filed March 21, 2023
File No. 001-40370
Dear Ms.
Tillan and Mr. Sundwall,
On
behalf of Bitfarms Ltd (the “Company”), I am responding to the comments contained in the letter dated June 26, 2023 (the
“Letter”) from the staff of the Securities and Exchange Commission (the “Commission” and, the staff of the Commission,
the “Staff”) to Jeffrey Lucas, Chief Financial Officer of the Company, relating to the Company’s Form 40-F for the
fiscal year ended December 31, 2022 (the “2022 40-F”). The responses contained herein are keyed to the numbers of the comments
in the Letter, which appear in italics below for convenience of reference. Unless otherwise indicated, capitalized terms used herein
have the meanings assigned to them in the 2022 40-F. As an initial matter, the Company notes that the only digital assets mined, purchased
and sold by the Company during the years ended December 31, 2021 and 2022 as well as year to date in 2023 were Bitcoin.
In
addition, as noted in further detail below, the following appendices are included with this response to the information requested in
the Letter:
● Appendix
A – Mining pool service agreement
● Appendix
B – Mining pool payout methodology
1. You
classify proceeds from the sale of digital assets mined within cash related to operating
activities. Please tell us how you considered IAS 7.16(b) which gives cash receipts from
sales of intangible assets as an example of cash flows arising from investing activities.
Provide us the general time frame you hold cryptocurrencies mined, including the average,
maximum and minimum time you held them during the periods presented.
Response:
IAS 7.14 describes cash flows from operating activities as being primarily derived from the principal revenue-producing activities
of the entity. Therefore, cash flows from operations generally result from the transactions and other events that enter into the determination
of profit or loss.
In
applying this principle for classification purposes, the Company classifies cash flows from the sale of Bitcoin based on the transaction
or event that originally gave rise to the Bitcoin and how it was presented on the Consolidated Statements of Financial Position. Specifically:
● Non-cash
consideration, i.e., Bitcoin, that is received in exchange for its computational power as
part of the core of the Company’s operating activities and the sale of the associated
Bitcoin that occurs within the Company’s normal operating cycle are reported among
cash flows from operating activities.
● Bitcoin
that the Company purchases and subsequently sells are reported among cash flows from investing
activities since the generation of the Bitcoin did not arise from the Company’s operating
activities (the Bitcoin was not received in exchange for its computational power) but rather
from actions conducted expressly as an investment activity.
1
For
the year ending December 31, 2022, the Company presented the monetization of Bitcoin in both operating and investing sections of the
Consolidated Statements of Cash Flows given that both of the categories described above were applicable.
IAS
7.16(b) refers to cash receipts from sales of property, plant and equipment, intangibles and other long-term assets, which all represent
long-term assets. As described in the response to Comment 4 below, the Company considers Bitcoin to be a current asset due to its liquid
nature and the presence of ready markets to exchange Bitcoin for cash, as well as the Company’s express intention to use the Bitcoin
to meet the Company’s operating cash requirements as the need arises. Accordingly, given the character and intended application
of the Bitcoin, the Company believes that presenting Bitcoin as a current asset is a more appropriate characterization of its actual
application. For these reasons, the Company does not believe its treatment of Bitcoin should be within the scope of IAS 7.16(b) except
where the Company purchases Bitcoin.
The
Company has benchmarked its presentation against the presentation in the financial statements by its peers in their filings with the
Commission and observed that its approach is consistently utilized by others within the industry and under International Financial Reporting
Standards (“IFRS”).
As
for the general time frame the Company holds its Bitcoin mined, the Company does not track, nor would it be practicable or useful for
the Company to track, which of its Bitcoin are held and which of its Bitcoin are sold since they are a “fungible” asset that
is accumulated in the same digital wallets. The Company does, however, maintain records concerning the Bitcoin held in treasury versus
the daily production sold and clarifies for the Staff that:
● The
minimum time the Company held Bitcoin during the periods presented was a few hours, since
the Company is primarily selling on a daily basis the majority of its daily production.
● The
maximum time the Company held Bitcoin during the periods presented was approximately 12 months,
as the Company began accumulating Bitcoin in early 2021 and commenced selling it in early
2022 as cash needs arose. However, from early 2022 to the current date, the Company typically
sells the majority of its Bitcoin mined on a daily basis primarily in order to fund working
capital needs.
●
The average time the Company held Bitcoin during the years ended December 31, 2021 and 2022 was approximately 11 months and 1 month, respectively. The average time Bitcoin was held, as presented here, was based on the turnover calculation described in the response to Comment 4.
2
2. Please
provide us your analysis supporting your revenue recognition policy for your mining pool
participation activities. In your response, where appropriate, reference for us the authoritative
literature you relied upon to support your accounting:
● Provide
us a representative sample contract and cross reference your analysis to the specific provisions
of that contract.
● Tell
us how the amount of consideration is determined under the contracts and the payment methods.
● Tell
us why you measure the non-cash consideration you receive for your mining activities based
on the price quoted on the day you receive the digital assets.
● Relate
your response to your disclosure that revenues from cryptocurrency mining are recognized
when the computing power is provided to the mining pool.
Response:
In response to the Staff’s comment and in support of the Company’s revenue recognition policy for its mining pool participation
activities, which are summarized below, the Company has included as Appendix A hereto a copy of its sole mining pool service agreement
(the “service agreement”), which the Company has redacted because the redacted information is both (i) not material and (ii)
would be competitively harmful if publicly disclosed. The Company agrees to furnish supplementally an unredacted copy of the service
agreement to the Commission upon its request. Under the service agreement, the consideration paid to the Company is determined according
to the Full-Pay-Per-Share “FPPS” payout scheme (as explained in more detail in Appendix B hereto). The Bitcoin earnings are
derived from the Company’s allocated proportional hashrate contribution to the mining pool, assessed over a 24-hour period, and
disbursed daily. The daily Bitcoin earnings consist of two distinct components:
a) The
Company’s share of the expected block rewards; and
b) The
Company’s share of the expected transaction fees.
Bitfarms’
agreement with the mining pool does not fit into the four exceptions of IFRS 15.5 which would require the Company to account for its
earnings from its mining pool participation activities outside of IFRS 15; therefore, the contract is accounted for within the scope
of IFRS 15, which requires the Company to:
1) Identify
the contract.
a. This
contract is identified as the mining pool service agreement (Appendix A), which has commercial
substance.
b. The
Company transfers its hashrate and receives Bitcoin based on the FPPS payout scheme (Appendix
B).
2) Identify
the performance obligations.
a. The
Company provides the mining pool with computing power (i.e., hashrate) for non-cash consideration
(i.e., Bitcoin).
3) Satisfy
the performance obligations.
a. The
Company’s hashrate is transferred to the mining pool over a 24-hour period, which is
used to find the block in order to receive the block reward and transaction fees.
4) Determine
the transaction price.
a. The
Company measures the Bitcoin earned and received from mining activities based on the price
quoted on the day the Bitcoin are received as that measurement time is a few hours after
the Company completes its performance obligation of providing its hashrate for 24 hours.
The mining pool disburses to the Company the Bitcoin earned on a daily basis.
3
3. In
future filings, please revise to disclose the following:
● The
time frame of when the revenue is deposited into your wallet.
● Whether
the digital assets are received in whole or fractions.
Response:
The Company acknowledges the Staff’s comment and will include the requested disclosure
in its future annual reports and any other future filings with the Commission where a detailed
description of its accounting principles is included. In terms of the time frame of when
the revenue is deposited into the wallet, this occurs on a daily basis, and the Bitcoin earned
is received in full, but can be distributed in fractions of Bitcoin. The Company is currently
in the process of drafting its proposed disclosure, which has not yet been finalized at the
date of this response letter.
4. You
classify your digital assets and pledged digital assets as current assets because management
determined that the digital assets have markets with sufficient liquidity to allow conversion
within your normal operating cycle. Please tell us how your classification of digital assets
as current assets considered IAS 1, including paragraphs 66 - 68. In your response, at a
minimum, address each of the following:
● For
digital assets held at December 31, 2021 and 2022, tell us the average length of time the
assets have been held and how frequently the assets turn over, explaining how you calculated
this turnover.
● Tell
us your consideration for carrying a portion of your holdings that are not expected to be
sold for cash as long-term.
Response:
The Company believes its Bitcoin adheres to the criteria to be classified as current assets as per paragraph 66 of IAS 1, which states
that an entity shall classify an asset as current when:
● it
expects to realise the asset, or intends to sell or consume it, in its normal operating cycle;
o The
Company sells its computing power, gets rewarded in Bitcoin and sells its Bitcoin to cover
costs and expenses during its normal operating cycle. The Bitcoin are sold when needed for
working capital purposes and, accordingly, should be classified as short-term.
● it
holds the asset primarily for the purpose of trading;
o The
Company considers its Bitcoin to be a liquid asset, as it can be readily converted to cash
as needed.
● it
expects to realise the asset within twelve months after the reporting period; or
o The
Company’s December 31, 2022 year-end balance and turnover demonstrated that the Company
expected to realize the asset within the next 12 months as a source of funds for operations.
● the
asset is cash or a cash equivalent (as defined in IAS 7) unless the asset is restricted
from being exchanged or used to settle a liability for at least twelve months after the reporting
period.
o Bitcoin
is not considered cash or a cash equivalent as defined in IAS 7 due to its price volatility.
The
majority of the Company’s mined Bitcoin are sold within an operating cycle to cover its costs and expenses, which is supported
by the turnover calculation below. The remaining Bitcoin are held within the Company’s treasury fo