Industrial-scale bitcoin mining is an extremely capital-intensive business. Debt financing can be an attractive way to raise the funds needed to purchase equipment without diluting ownership through equity issuance. But the mining industry is volatile and loans generally carry high interest rates and strict collateral requirements, making it a double-edged sword for those that borrow to expand. Case in point: Canadian bitcoin miner Bitfarms.

CoinDesk Research presents an in-depth look into Bitfarms. With over 29,000 ASIC miners spread across five facilities, Bitfarms is one of Canada’s largest bitcoin mining companies. Throughout 2019, the company quickly grew its overall hashrate, which was financed primarily through a $20 million loan from Dominion Capital. In this report, we examine Bitfarms’ financial position and evaluate its ability to pay down debt coming due in 2021.

Some takeaways:

• At its core, Bitfarms operates decent equipment at a respectable cost of electricity, resulting in positive operating cash flows.
• However, the company used high-interest-rate debt with large balloon payments to expand operations. Now, with over $20 million in financial obligations coming due by the end of 2021 coupled with declining revenue output per terahash, Bitfarms may struggle to pay off its debt.

Read more: In Canada They’re ‘Essential,’ In Argentina They’re Shut Down: Bitcoin Miners Reckon With COVID-19

• Assuming there’s no significant jump in bitcoin prices, the Toronto-based Bitfarms will likely need to expand operations with efficient mining equipment within the next 12 months, which will require the company to raise additional capital.
• A list of covenants and restrictions from its loan, however, may hamper the company’s ability to raise capital through equity and debt, leaving Bitfarms with very few apparent options.

Read the full report here.

UPDATE (July 28, 03:00 UTC): The last bullet point of this article and the format were modified to make clear it expresses the analyst’s opinion.