Correspondence 0001213900-24-008928 from Bitfarms Ltd (BITF) (CIK 0001812477) (BITF)
Bitfarms Ltd (BITF) (CIK 0001812477)
Date: Feb. 1, 2024 · CIK: 0001812477 · Accession: 0001213900-24-008928
AI Filing Summary & Sentiment
File numbers found in text: 001-40370
Referenced dates: January 18, 2024, October 5, 2023
Letter
VIA EDGAR Securities and Exchange Commission Division of Corporation Finance Office of Crypto Assets Form 40-F for the Fiscal Year Ended December 31, 2022 Filed March 21, 2023 File No. 001-40370 SEC Staff letter dated January 18, 2024
Dear Ms. Tillan and Mr. Sundwall,
On behalf of Bitfarms Ltd. (the “Company”), we hereby provide responses to comments received from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) by letter dated January 18, 2024 (the “Comment Letter”) with respect to the above-referenced Form 40-F for the fiscal year ended December 31, 2022 (the “2022 40-F”) filed with the Commission on March 21, 2023.
The headings and paragraph numbers in this letter correspond to those contained in the Comment Letter. To facilitate the Staff’s review, we have reproduced the text of the Staff’s comments in bold and italics below, followed by responses from the Company. Capitalized terms used but not defined herein have the meanings given to them in the 2022 40-F. All references to page numbers and captions (other than those in the Staff’s comments and unless otherwise stated) correspond to the page numbers and captions in the 2022 40-F.
Securities and Exchange Commission
February 1, 2024
Page 2
As a threshold matter, the Company notes that other than Bitcoin, the Company did not mine, purchase or sell any digital assets during the years ended December 31, 2021 and 2022, 2023 as well as year-to-date in 2024.
In addition, as noted in further detail below, the following appendix is included with this response to the information requested in the Letter:
· Appendix A – Proposed draft excerpts of the Company’s applicable material accounting policy information to be included in the financial statements for the year ended December 31, 2023
1. We continue to evaluate your response to comment 1.
The Company respectfully acknowledges the Staff’s comment.
2. We acknowledge your response to comment 2. Please respond to the following:
For ease of reference, the Company has labeled its responses (a through h) below to correspond to the bullets set forth in the Staff’s comment 2.
a) Your disclosure indicates that your single performance obligation is providing computing power and your response indicates your single performance obligation is providing hashrate. We believe your disclosure requires a more precise description of your promise and single performance obligation. Please tell us whether a more accurate description of your promise and single performance obligation is a service to perform hash calculations for the pool operator, and if so, revise your disclosure to clarify.
In the Company’s previous response letter dated October 5, 2023, the Company used computing power and hashrate interchangeably. The Company’s obligation is to provide computing power, which is measured by hashrate to the pool operator. It is the pool operator that dictates how this computing power will be used (e.g., to perform hash calculations) as they so choose.
The Company acknowledges the Staff’s comment and will further clarify the disclosure in its financial statements and all other future filings with the Commission where a detailed description of its accounting policies is included. The revised disclosure will explain that the cryptocurrency earnings are calculated based on a formula which, in turn, is based on the hashrate contributed by the Company's provided computational power allocated to the Mining pool, assessed over a 24-hour period, and distributed daily based on the Full Pay Per Share (“FPPS”) methodology. The Company is currently in the process of drafting its proposed disclosures (refer to Appendix A hereto) which have not yet been finalized at the date of this response letter.
Securities and Exchange Commission
February 1, 2024
Page 3
b) With respect to the termination provisions in both your current and prior arrangements with your mining pool operator for the reporting periods presented, specifically clarify whether you have concluded that the mining pool operator with whom you contract is your customer and address whether the mining pool operator, as your customer, has a unilateral enforceable right to terminate the contract at any time without substantively compensating you for the termination. In your response, refer us to the applicable portion of your arrangement. If such a termination right exists, tell us your consideration of whether the duration of the contract extends beyond the goods or services already transferred, and, if not, whether the duration of the contract is less than 24 hours and the contract continuously renews throughout the day. Make corresponding revisions to your accounting policy as necessary.
The Company has concluded that its customer is the mining pool operator. Section 11 and 8 of the current and prior agreements with the Company’s mining pool operator previously provided as attachments to the response letters dated October 5, 2023 and July 27, 2023, respectively, for the reporting periods presented, state that the mining pool operator and the Company each have an enforceable right to terminate the contract at any time without substantively compensating the other party for the termination. Upon termination, the mining pool operator is required to pay the Company the amount due related to previously satisfied performance obligations. As a result, the Company has determined that the duration of the contract is less than 24 hours and that the contract is continuously renewed throughout the day.
The Company acknowledges the Staff’s comment and will include the requested disclosure in its financial statements and all other future filings with the Commission where a detailed description of its accounting policies is included. The revised disclosure will explain that the Company’s agreements with the mining pool operator provide the mining pool operator and the Company with the enforceable right to terminate the contract at any time without substantively compensating the other party for the termination. Upon termination, the mining pool operator is required to pay the Company the amount due related to previously satisfied performance obligations. As a result, the Company has determined that the duration of the contract is less than 24 hours and the contract is continuously renewed throughout each day. The Company is currently in the process of drafting its proposed disclosures (refer to Appendix A hereto) which have not yet been finalized at the date of this response letter.
c) To the extent your mining pool operator possesses the ability to terminate the contract at any time, it appears this right could be akin to a renewal right. If this right exists, tell us whether it is a material right. For example, clarify whether the terms, conditions, and compensation amounts of the renewal right is at the then-current market rates. If so, tell us whether you have concluded that the customer’s renewal option is not a material right. Refer to IFRS 15.26(j). Make corresponding revision to your accounting policy and related disclosures to the extent necessary.
As described in response 2b above, the mining pool operator possesses the ability to terminate the contract at any time which could be viewed as being similar to a renewal right. The Company has determined, in accordance with IFRS 15.26 (j), that the mining pool operator’s renewal right is not a material right as the terms, conditions, and compensation amounts are at then-current market rates and the Company could readily provide its computing power to a different pool operator within approximately one day at then-current market rates should it choose to do so.
Securities and Exchange Commission
February 1, 2024
Page 4
The Company acknowledges the Staff’s comment and will include the requested disclosure in its financial statements and all other future filings with the Commission where a detailed description of its accounting policies is included. The revised disclosure will explain that the Company has determined that the mining pool operator’s renewal right is not a material right as the terms, conditions, and compensation amounts are at then-current market rates. The Company is currently in the process of drafting its proposed disclosures (refer to Appendix A hereto) which have not yet been finalized at the date of this response letter.
d) Revise your accounting policy to disclose the form of consideration to which you are entitled for providing the service of performing hash calculations for the pool operator (i.e., bitcoin) and your conclusion that the consideration is variable. Also, revise your accounting policy to identify the payout methodology used to determine the amount of consideration to which you are entitled and describe the variables that comprise the formula. For example, under the Full Pay Per Share (FPPS) payout model it appears you earn compensation equal to the sum of your share of (a) network block subsidies and (b) network transaction fees less (c) pool operating fees and that each of these components has a number of variables.
The Company respectfully acknowledges the Staff’s comment and will include the requested disclosure in its financial statements and all other future filings with the Commission where a detailed description of its accounting policies is included. The revised disclosure will explain that the Company has entered into contracts with a Mining pool and has undertaken the performance obligation of providing computing power to the Mining pool in exchange for non-cash consideration in the form of cryptocurrency which is variable consideration. The cryptocurrency earnings are calculated based on a formula which, in turn, is based on the hashrate contributed by the Company's provided computational power allocated to the Mining pool, assessed over a 24-hour period, and distributed daily based on the FPPS methodology. The Company assesses the estimated amount of the variable non-cash consideration to which it expects to be entitled for providing computational power at contract inception and subsequently measures if it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The uncertainties regarding the daily variable consideration to which the Company is entitled for providing its computational power are no longer constrained at 23:59:59 UTC, regardless of the timing of the Bitcoin received. The amount earned is calculated as the Company's proportionate share of the summation of the (i) block reward and (ii) transaction fees, less (iii) mining pool operating fees.
(i) Block reward refers to the Company’s share of the total amount of block subsidies that are expected to be generated on the Bitcoin network as a whole. The block reward earned by the Company is calculated by dividing (a) the total amount of hashrate the Company provides to the Mining pool operator, by (b) the total Bitcoin network’s implied hashrate (as determined by the Bitcoin network difficulty), multiplied by (c) the total amount of block subsidies that are expected to be generated on the Bitcoin network as a whole. The Company is entitled to its relative share of consideration even if a block is not successfully added to the blockchain by the Mining pool.
Securities and Exchange Commission
February 1, 2024
Page 5
(ii) Transaction fees refers to the total fees paid by users of the network to execute transactions. The Company is entitled to a pro-rata share of the total amount of transaction fees that are actually generated on the Bitcoin network as a whole. The transaction fees paid out by the mining pool operator to the Company is calculated by dividing (a) the total amount of transaction fees that are actually generated on the Bitcoin network as a whole, by (b) the total amount of block subsidies that are actually generated on the Bitcoin network as a whole, multiplied by (c) the Company’s block rewards earned as calculated in (i) above. The Company is entitled to its relative share of consideration even if a block is not successfully added to the blockchain by the mining pool.
(iii) Mining pool operating fees refers to fees charged to pool members for their participation in the pool as defined in the rate schedule of the agreement with the Mining pool operator.
The cryptocurrency earned is received in full and can be paid in fractions of cryptocurrency. Revenues from providing cryptocurrency computational power are recognized upon delivery of the service over a 24-hour period, which generally coincides with the receipt of crypto assets in exchange for the provision of computational power and the contract inception date. The Company updates the estimated transaction price of the non-cash consideration received at its fair market value. Management estimates fair value daily based on the quantity of cryptocurrency received multiplied by the price quoted from Coinbase Inc. (“Coinbase”) on the day it was received. Management considers the prices quoted on Coinbase to be a level 2 input under IFRS 13 Fair Value Measurement.
The Company is currently in the process of drafting its proposed disclosures (refer to Appendix A hereto) which have not yet been finalized at the date of this response letter.
e) Revise the statement in your accounting policy describing the transaction price to clarify whether you constrain any portion of your estimate of the variable consideration to which you are entitled for performing the service. For example, clarify whether the uncertainties in the FPPS variables no longer exist at 23:59:59 UTC irrespective of the timing of your receipt of confirmation of the bitcoin you will receive or your actual receipt of such bitcoin.
Please refer to response 2d above, which includes the preliminary accounting policy revisions pertaining to the constrained variables that are no longer constrained at 23:59:59 UTC, regardless of the timing of the Bitcoin received.
f) We note your disclosure that you measure the non-cash consideration based on the price on the day it is received. Revise your accounting policy to describe how the measurement date relates to both the date of contract inception and the date you transfer control of the service under the contract.
Please refer to response 2d above, which includes the preliminary accounting policy revisions pertaining to measurement of non-cash consideration based on its value when it is received. Revenues from providing cryptocurrency computational power are recognized upon delivery of the service over a 24-hour period, which generally coincides with the receipt of crypto assets in exchange for the provision of computational power and the contract inception date. The Company updates the estimated transaction price of the non-cash consideration received at its fair market value.
Securities and Exchange Commission
February 1, 2024
Page 6
g) In your response, you state in your discussion of IFRS 15.46 that your provision of computing power and the settlement of the receivable occur on the same day, on page 14 of your response you state the non-cash consideration is received at the end of the day, and in the discussion of IFRS
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Skadden,
Arps, Slate, Meagher & Flom llp
One
Manhattan West
New
York, NY 10001
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TEL: (212) 735-3000
FAX: (212) 735-2000
www.skadden.com
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TOKYO
TORONTO
February 1, 2024
VIA EDGAR
Securities and Exchange Commission
Division of Corporation Finance
Office of Crypto Assets
100 F Street, NE
Washington, D.C. 20549
Attn:
Kate Tillan
Rolf Sundwall
Re:
Bitfarms Ltd.
Form 40-F for the Fiscal Year Ended December 31, 2022
Filed March 21, 2023
File No. 001-40370
SEC Staff letter dated January 18, 2024
Dear Ms. Tillan and Mr. Sundwall,
On behalf of Bitfarms Ltd.
(the “Company”), we hereby provide responses to comments received from the staff (the “Staff”) of the Securities
and Exchange Commission (the “Commission”) by letter dated January 18, 2024 (the “Comment Letter”) with respect
to the above-referenced Form 40-F for the fiscal year ended December 31, 2022 (the “2022 40-F”) filed with the Commission
on March 21, 2023.
The headings and paragraph
numbers in this letter correspond to those contained in the Comment Letter. To facilitate the Staff’s review, we have reproduced
the text of the Staff’s comments in bold and italics below, followed by responses from the Company. Capitalized terms used but not
defined herein have the meanings given to them in the 2022 40-F. All references to page numbers and captions (other than those in the
Staff’s comments and unless otherwise stated) correspond to the page numbers and captions in the 2022 40-F.
Securities and Exchange Commission
February 1, 2024
Page 2
As a threshold matter, the
Company notes that other than Bitcoin, the Company did not mine, purchase or sell any digital assets during the years ended December 31,
2021 and 2022, 2023 as well as year-to-date in 2024.
In addition, as noted in further detail below,
the following appendix is included with this response to the information requested in the Letter:
· Appendix A – Proposed draft excerpts of
the Company’s applicable material accounting policy information to be included in the financial statements for the year ended December
31, 2023
1. We continue to evaluate your response to comment 1.
The Company respectfully
acknowledges the Staff’s comment.
2. We acknowledge your response to comment 2. Please respond to the following:
For ease of reference, the
Company has labeled its responses (a through h) below to correspond to the bullets set forth in the Staff’s comment 2.
a) Your disclosure indicates that your single performance obligation is providing computing power and
your response indicates your single performance obligation is providing hashrate. We believe your disclosure requires a more precise description
of your promise and single performance obligation. Please tell us whether a more accurate description of your promise and single performance
obligation is a service to perform hash calculations for the pool operator, and if so, revise your disclosure to clarify.
In the Company’s previous
response letter dated October 5, 2023, the Company used computing power and hashrate interchangeably. The Company’s obligation is
to provide computing power, which is measured by hashrate to the pool operator. It is the pool operator that dictates how this computing
power will be used (e.g., to perform hash calculations) as they so choose.
The Company acknowledges
the Staff’s comment and will further clarify the disclosure in its financial statements and all other future filings with the Commission
where a detailed description of its accounting policies is included. The revised disclosure will explain that the cryptocurrency earnings
are calculated based on a formula which, in turn, is based on the hashrate contributed by the Company's provided computational power allocated
to the Mining pool, assessed over a 24-hour period, and distributed daily based on the Full Pay Per Share (“FPPS”) methodology.
The Company is currently in the process of drafting its proposed disclosures (refer to Appendix A hereto) which have not yet been finalized
at the date of this response letter.
Securities and Exchange Commission
February 1, 2024
Page 3
b) With respect to the termination provisions in both your current and prior arrangements with your
mining pool operator for the reporting periods presented, specifically clarify whether you have concluded that the mining pool operator
with whom you contract is your customer and address whether the mining pool operator, as your customer, has a unilateral enforceable right
to terminate the contract at any time without substantively compensating you for the termination. In your response, refer us to the applicable
portion of your arrangement. If such a termination right exists, tell us your consideration of whether the duration of the contract extends
beyond the goods or services already transferred, and, if not, whether the duration of the contract is less than 24 hours and the contract
continuously renews throughout the day. Make corresponding revisions to your accounting policy as necessary.
The Company has concluded
that its customer is the mining pool operator. Section 11 and 8 of the current and prior agreements with the Company’s mining pool
operator previously provided as attachments to the response letters dated October 5, 2023 and July 27, 2023, respectively, for the reporting
periods presented, state that the mining pool operator and the Company each have an enforceable right to terminate the contract at any
time without substantively compensating the other party for the termination. Upon termination, the mining pool operator is required to
pay the Company the amount due related to previously satisfied performance obligations. As a result, the Company has determined that the
duration of the contract is less than 24 hours and that the contract is continuously renewed throughout the day.
The Company acknowledges
the Staff’s comment and will include the requested disclosure in its financial statements and all other future filings with the
Commission where a detailed description of its accounting policies is included. The revised disclosure will explain that the Company’s
agreements with the mining pool operator provide the mining pool operator and the Company with the enforceable right to terminate the
contract at any time without substantively compensating the other party for the termination. Upon termination, the mining pool operator
is required to pay the Company the amount due related to previously satisfied performance obligations. As a result, the Company has determined
that the duration of the contract is less than 24 hours and the contract is continuously renewed throughout each day. The Company is currently
in the process of drafting its proposed disclosures (refer to Appendix A hereto) which have not yet been finalized at the date of this
response letter.
c) To the extent your mining pool operator possesses the ability to terminate the contract at any time,
it appears this right could be akin to a renewal right. If this right exists, tell us whether it is a material right. For example, clarify
whether the terms, conditions, and compensation amounts of the renewal right is at the then-current market rates. If so, tell us whether
you have concluded that the customer’s renewal option is not a material right. Refer to IFRS 15.26(j). Make corresponding revision
to your accounting policy and related disclosures to the extent necessary.
As described in response
2b above, the mining pool operator possesses the ability to terminate the contract at any time which could be viewed as being similar
to a renewal right. The Company has determined, in accordance with IFRS 15.26 (j), that the mining pool operator’s renewal right
is not a material right as the terms, conditions, and compensation amounts are at then-current market rates and the Company could readily
provide its computing power to a different pool operator within approximately one day at then-current market rates should it choose to
do so.
Securities and Exchange Commission
February 1, 2024
Page 4
The Company acknowledges
the Staff’s comment and will include the requested disclosure in its financial statements and all other future filings with the
Commission where a detailed description of its accounting policies is included. The revised disclosure will explain that the Company has
determined that the mining pool operator’s renewal right is not a material right as the terms, conditions, and compensation amounts
are at then-current market rates. The Company is currently in the process of drafting its proposed disclosures (refer to Appendix A hereto)
which have not yet been finalized at the date of this response letter.
d) Revise your accounting policy to disclose the form of consideration to which you are entitled for
providing the service of performing hash calculations for the pool operator (i.e., bitcoin) and your conclusion that the consideration
is variable. Also, revise your accounting policy to identify the payout methodology used to determine the amount of consideration to which
you are entitled and describe the variables that comprise the formula. For example, under the Full Pay Per Share (FPPS) payout model it
appears you earn compensation equal to the sum of your share of (a) network block subsidies and (b) network transaction fees less (c)
pool operating fees and that each of these components has a number of variables.
The Company respectfully
acknowledges the Staff’s comment and will include the requested disclosure in its financial statements and all other future filings
with the Commission where a detailed description of its accounting policies is included. The revised disclosure will explain that the
Company has entered into contracts with a Mining pool and has undertaken the performance obligation of providing computing power to the
Mining pool in exchange for non-cash consideration in the form of cryptocurrency which is variable consideration. The cryptocurrency earnings
are calculated based on a formula which, in turn, is based on the hashrate contributed by the Company's provided computational power allocated
to the Mining pool, assessed over a 24-hour period, and distributed daily based on the FPPS methodology. The Company assesses the estimated
amount of the variable non-cash consideration to which it expects to be entitled for providing computational power at contract inception
and subsequently measures if it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not
occur. The uncertainties regarding the daily variable consideration to which the Company is entitled for providing its computational power
are no longer constrained at 23:59:59 UTC, regardless of the timing of the Bitcoin received. The amount earned is calculated as the Company's
proportionate share of the summation of the (i) block reward and (ii) transaction fees, less (iii) mining pool operating fees.
(i) Block reward refers to
the Company’s share of the total amount of block subsidies that are expected to be generated on the Bitcoin network as a whole.
The block reward earned by the Company is calculated by dividing (a) the total amount of hashrate the Company provides to the Mining
pool operator, by (b) the total Bitcoin network’s implied hashrate (as determined by the Bitcoin network difficulty), multiplied
by (c) the total amount of block subsidies that are expected to be generated on the Bitcoin network as a whole. The Company is entitled
to its relative share of consideration even if a block is not successfully added to the blockchain by the Mining pool.
Securities and Exchange Commission
February 1, 2024
Page 5
(ii) Transaction fees refers
to the total fees paid by users of the network to execute transactions. The Company is entitled to a pro-rata share of the total amount
of transaction fees that are actually generated on the Bitcoin network as a whole. The transaction fees paid out by the mining pool operator
to the Company is calculated by dividing (a) the total amount of transaction fees that are actually generated on the Bitcoin network
as a whole, by (b) the total amount of block subsidies that are actually generated on the Bitcoin network as a whole, multiplied
by (c) the Company’s block rewards earned as calculated in (i) above. The Company is entitled to its relative share of
consideration even if a block is not successfully added to the blockchain by the mining pool.
(iii) Mining pool operating
fees refers to fees charged to pool members for their participation in the pool as defined in the rate schedule of the agreement with
the Mining pool operator.
The cryptocurrency earned
is received in full and can be paid in fractions of cryptocurrency. Revenues from providing cryptocurrency computational power are recognized
upon delivery of the service over a 24-hour period, which generally coincides with the receipt of crypto assets in exchange for the provision
of computational power and the contract inception date. The Company updates the estimated transaction price of the non-cash consideration
received at its fair market value. Management estimates fair value daily based on the quantity of cryptocurrency received multiplied by
the price quoted from Coinbase Inc. (“Coinbase”) on the day it was received. Management considers the prices quoted on Coinbase
to be a level 2 input under IFRS 13 Fair Value Measurement.
The Company is currently
in the process of drafting its proposed disclosures (refer to Appendix A hereto) which have not yet been finalized at the date of this
response letter.
e) Revise the statement in your accounting policy describing the transaction price to clarify whether
you constrain any portion of your estimate of the variable consideration to which you are entitled for performing the service. For example,
clarify whether the uncertainties in the FPPS variables no longer exist at 23:59:59 UTC irrespective of the timing of your receipt of
confirmation of the bitcoin you will receive or your actual receipt of such bitcoin.
Please refer to response
2d above, which includes the preliminary accounting policy revisions pertaining to the constrained variables that are no longer constrained
at 23:59:59 UTC, regardless of the timing of the Bitcoin received.
f) We note your disclosure that you measure the non-cash consideration based on the price on the day
it is received. Revise your accounting policy to describe how the measurement date relates to both the date of contract inception and
the date you transfer control of the service under the contract.
Please refer to response
2d above, which includes the preliminary accounting policy revisions pertaining to measurement of non-cash consideration based on its
value when it is received. Revenues from providing cryptocurrency computational power are recognized upon delivery of the service over
a 24-hour period, which generally coincides with the receipt of crypto assets in exchange for the provision of computational power and
the contract inception date. The Company updates the estimated transaction price of the non-cash consideration received at its fair market
value.
Securities and Exchange Commission
February 1, 2024
Page 6
g) In your response, you state in your discussion of IFRS 15.46 that your provision of computing power
and the settlement of the receivable occur on the same day, on page 14 of your response you state the non-cash consideration is received
at the end of the day, and in the discussion of IFRS