Northern Data, the specialist in high-performance computing, is one of the world’s leading providers of Bitcoin mining infrastructure and is listed on the Frankfurt Stock Exchange (XETRA: NB2, ISIN: DE000A0SMU87). We spoke to founder and CEO Aroosh Thillainathan about the outlook for Bitcoin and the growth expectations for Northern Data.
Ask: Mr. Thillainathan, Bitcoin is getting more and more attention, not least because of the massive increase it is currently experiencing. The price of Bitcoin has more than doubled in recent weeks. Where does this momentum suddenly come from?
A: There are many reasons: payment companies such as Paypal and Square recently announced that they will allow their customers to pay with Bitcoins in the future, opening a mass market for the digital currency. In addition, the first US companies are currently starting to transfer their currency reserves to Bitcoin – primarily the US software company Microstrategy. The players in the US capital market are also starting to discover Bitcoin. JP Morgan recently published that their strategists believe that Bitcoin could reach $ 146,000 and above in the long run as it begins to compete with gold as an asset class. And there are rumors that several central banks are currently buying bitcoins on a large scale. The mere fact that there is no reason whatsoever is why, to me, the current rise in Bitcoin price is on a rock solid foundation.
Ask: Do you think Bitcoin has the potential to become an asset class such as gold, stocks or bonds?
A: It is already! While Bitcoin’s usefulness as a payment instrument is still in its infancy, Bitcoin is already the “better gold” for the new generation of investors. It is a safe way to store value, especially in this current day and age where more and more governments are expanding their money printing business.
Ask: But gold has been accepted as a so-called “store of value” for thousands of years, while Bitcoin is only slightly older than 10 years.
A: However, Bitcoin has a number of advantages over gold: it is free and easier to store, and it allows its owner to access, share or transfer assets from anywhere in the world at any time. Imagine, for example, on a Sunday afternoon you want to transfer gold for the equivalent of 5,000 euros from Frankfurt to Hong Kong within minutes. What is completely impossible with gold is not a problem with Bitcoin. And in terms of effort, it is also irrelevant whether you transfer Bitcoins for five thousand or five million euros, which of course makes Bitcoin particularly attractive for professional investors. And finally, it is a matter of the collective acceptance of Bitcoin as a “store of value”, and in my opinion that is now a widely accepted fact.
Ask: So you see Bitcoin as a new asset class. Doesn’t the Bitcoin price fluctuate too much for that?
A: Let’s remember last year’s spring, when many stocks plummeted more than 50% within a few days. Bitcoin does not fluctuate more than other volatile asset classes. Due to the money pressure orgy we are currently seeing, all promising asset classes will remain volatile in the future. Besides, fiat money – the euro, dollar, and so on – is also very volatile. In fact, the USD has likely lost about 20% of its value in the past 12 months. At least. Most investors just don’t see it yet, because they take exactly this fiat money as the reference value, which creates the illusion that fiat money is stable.
Ask: Do you see further upside potential in Bitcoin?
A: Bitcoin offers investors the opportunity to escape the devaluation of their fiat currencies due to the massive injection of money from almost all central banks. It is estimated that more than 22 percent of the US dollar in circulation was printed by the Federal Reserve in the past year. So when you realize that almost a quarter of all existing US dollars was created in the past year, you realize the enormous potential of Bitcoin as a store of value. We are just at the beginning.
Ask: Does mining not threaten Bitcoin with a fate similar to that of the US dollar?
A: Not at all. Since the final amount of Bitcoin is limited to 21 million pieces, it is in stark contrast to conventional currencies, which suffer from unrestricted money creation by central banks. Currently, 18.81 million Bitcoins exist, with 900 new Bitcoins daily through mining. In 2140, the last Bitcoins will be mined and from that moment on no new Bitcoins will be added. Bitcoin’s scarcity is the ultimate value proposition.
Ask: If Bitcoin establishes itself permanently as a new asset class, will we all ever invest some of our wealth in Bitcoin?
A: Absolutely. And as Gorbachev said so beautifully, “Those who are late will be punished by life itself”! A striking example: last year, more than 24 million people had assets of more than a million dollars. So, absurdly, it will never be possible for every millionaire to own a single Bitcoin, because there simply are not enough Bitcoins.
Ask: With all these positive prospects for the future, is there no chance of setbacks? Bitcoin is still not regulated everywhere and could negative reviews from the SEC, for example, bring an abrupt end to the price increase?
A: Bitcoin’s further regulation is, of course, an issue that could again threaten setbacks. And as I said, investors need to be prepared for volatility not just in Bitcoin, but across all asset classes. The financial world has changed radically in recent years. Regarding regulation, Bitcoin has already reached a scale where it can no longer simply be ‘banned’. Major US listed companies are already starting to invest a significant portion of their cash reserves in Bitcoin, and major investment companies such as Fidelity and the first insurance companies such as MassMutual have also discovered the cryptocurrency. It is clear that Bitcoin will be further regulated globally, and when this process is completed in the coming years, Bitcoin will have fully entered the mainstream. It is also interesting to look at markets where Bitcoin is already regulated. For example, Bitcoin has been officially recognized as legal tender in Japan since 2017. The experience with it has been extremely positive and gives a good indication of what to expect in other markets. I would sum it up like this: more regulation will make Bitcoin stronger in the long run, not weaker.
Ask: Your company Northern Data is itself one of the largest providers of Bitcoin mining infrastructure. How long have you been active in this field?
A: We moved with our team to Bitcoin mining at a very early stage, almost eight years ago, at this point. Bitcoin mining is very competitive. Only those with the most efficient infrastructure can survive fierce competition. Our very early entry into this market forced us to develop our own proprietary solutions to the challenges that come with it. Bitcoin mining is one of the earliest and largest applications of high-performance computing (HPC), where hundreds of thousands of highly specialized computers solve complex computing tasks in parallel. This poses extreme challenges, partly because the chips used have special requirements in terms of power consumption and cooling needs. We therefore had to develop our own proprietary cooling innovations and needed a dedicated AI to run thousands of computers in parallel. But this pressure to develop our own innovations at an early stage is the foundation of our success today. Today, we serve billion-dollar businesses and offer full Bitcoin mining services, from purchasing the hardware to setting it up to running it successfully in our data centers.
Ask: How is your business benefiting from the positive development of Bitcoin?
A: On the one hand, we are experiencing a huge demand for our infrastructure, which is why we are currently opening a new data center site every few weeks. Demand is simply overwhelming and we have long waiting lists. Because we enter into long-term contracts with our customers and they pay us upfront to build the infrastructure, this creates a massive global infrastructure for HPC in a relatively short time. This infrastructure is in our possession and enables us to achieve significant growth for many years. In addition to the basic remuneration, we have also agreed variable remuneration components with individual customers, with which Northern Data itself directly participates in the rising Bitcoin price. Due to current developments, we are talking about a very significant additional benefit that we have not yet taken into account in our public forecasts.
Ask: Yet your public forecast already shows almost incredible growth …
A: That’s right. In the current year we expect to generate revenues between € 350 million and € 400 million with an EBITDA between € 100 million and € 125 million, based purely on contracts already concluded and excluding the aforementioned performance-related fee.
Ask: And what will it look like for 2022 and beyond?
A: As we are currently in a period of high growth as mentioned above, the 2021 numbers are only the basis for continued high growth in the coming years. In the future, in addition to establishing Bitcoin as a new asset class, we will benefit very strongly from the other uses in the field of HPC, which are only now starting to become relevant. While the majority of our clients are currently still Bitcoin miners, by the end of this year our client base should be much more diversified, for example with clients in AI, deep learning, research or rendering.
As I said before about the price of Bitcoin, we are only at the beginning. This also applies to Northern Data, both in terms of our operating figures and our company valuation.