Tampa company shifts directions, invests millions to find and sell bitcoin

Tampa entrepreneur Bruce Rodgers, after a decade-plus in the low-key industry of funding homeowners associations hit by hard times, likely didn't think he would become a bitcoin boss one day.

But there he was in New York City recently, likely telling investors why the Tampa-based, publicly traded holding company he oversees, LM Funding America, is undervalued and ready to bust out with bitcoin.

Not necessarily buying and selling bitcoin. But mining for it. 

In 2021, LM Funding — after more than 15 years in a niche HOA financing market — fired up what is likely one of the few bitcoin mining companies in the Sunshine State. Mining means bitcoin-specific computing machines hashing out, or guessing, the right solution to add to the bitcoin blockchain, thus earning a reward — one block of 6.25 bitcoins.

On paper, it's a rather unusual move: going from HOA funding to bitcoin mining. But Rodgers, LM Funding's CEO, says it's a new way for the publicly traded holding company to simply make revenue. And by one metric that has been true: the company posted $8.9 million in revenue in the first nine months of 2023, public filings show, with $8.3 million from bitcoin mining.

Bitcoin mining is now a big priority among other LM Funding ventures, and it has the potential to drop hundreds more of valuable bitcoins into the firm's virtual wallet. That, if some bitcoin projections are right, could catapult LM Funding into becoming a $100 million-plus business by 2030. 

But as with all things business, there are hurdles and questions. Two big ones: how much mining of new bitcoins will its 6,000 machines produce? And how much will bitcoin appreciate in value as the finite number of bitcoin gets smaller?

The pivot

LM Funding was founded in January 2008 — one year before the invention of bitcoin. 

Its business model — funding homeowners and condo associations troubled by residents behind on their fees — worked nicely after the 2008-2009 recession and the slow recovery, because HOAs needed help, says Rodgers. The associations usually had trouble paying for the common expenses of the homeowners, such as pools and green space maintenance.

The genesis of LM Funding goes back to when Rodgers, a lawyer with an undergrad engineering degree from Vanderbilt University, was recovering from back surgery in late 2007. Rodgers says he had some minor legal experience with real estate deals at the time, and understood what HOAs needed.

"We came and in and bought (associations') bad debt, gave them cash so they could keep operating," says Rodgers. "People won't lose their $500,000 condo over $8,000 in delinquent condo dues. They will figure out a way to find the eight grand. And when they do, they pay us and we get our cut and the (association) gets theirs and it all works out."

The business grew: LM Funding went public on Nasdaq in 2015. On Oct. 23, 2015, the company raised $10 million trading under the ticker LMFA.

A challenge for the company was an improving housing market, which looked a lot different in 2021 than it did in 2008.

"It's a business model that does well in bad real estate times, but as the real estate world held up, the amount it took to acquire new accounts became crushingly expensive," says Rodgers. "So that business kind of limps along because there are still pockets of stress."

Calculated risk

In 2021, with residential real estate stronger, LM Funding needed a new angle: Its stock price had dropped to $3.75 in May of that year, and it would go lower. (Currently, because it is trading under $1 per share, LM Funding was granted a 180-calendar day grace period, until April 8, to regain NASDAQ compliance, Rodgers says.)

Rodgers, often calculating possibilities, researched cryptocurrency and decided to pursue bitcoin, the virtual currency with market value. He studied what the Securities and Exchange Commission would allow, and bought some bitcoins and put them on the balance sheet.

Then Rodgers had another idea: The cheapest way to get a bitcoin was to earn one, not buy one. LM Funding would do that by mining them. LM Funding would generate coins using Bitcoin-specific machines that send out trillions and trillions of "hashes," or guesses, per second, to unlock a block of 6.25 bitcoins.

On Oct. 19, 2021, LM Funding announced it would use $30 million it raised to begin bitcoin mining with its first 1,000 metallic minions. It seemed like perfect timing. Not long after LM Funding's public offering to get into mining, bitcoin hit its all-time high of more than $67,000 per coin in November 2021.

Yet there was a catch: the scale of mining. Bitcoin had jumped in value so much that big players with massive computing power had entered the chat. PC users became pitifully outgunned by digital companies setting up mines — huge data centers — that generated quintillions of hashes per second and guzzled electricity while doing it. 

"Early on in bitcoin's history, you could (mine) on your laptop," says Parker Merritt, an engineer at Coin Metrics, a Boston-based crypto finance intelligence firm.

The computing became more specialized, and companies such as LM Funding use ASICs — desktop-sized computers with chips designed for one purpose, Merritt says.

Together, the ASICs make trillions (actually, quintillions) of guesses per second to "generate a cryptographic number that matches (bitcoin's) criteria. The first miner to find the solution to the problem receives the bitcoin reward and the process begins again," according to Investopedia.

Even with global miners making an unimaginable number of "hash" per second, it takes about 10 minutes for some user to get a reward of 6.25 bitcoins, says John Dorrell, a University of Tampa economics professor who studies bitcoin.

LM Funding could not locally provide the power and cooling the machines need, as it has eight employees. So LM Funding outsourced the upkeep of its now-6,000 miners to sites mostly in Kentucky, with some in Texas.

And even having 6,000 machines is not enough. Many miners like LM Funding prefer to align themselves with other "pools" of miners. Rodgers says the quadrillions of hashes per second his machines make do not stand alone. Their hashes are sent to a computing pool that has spelled out how the bitcoins are rewarded.

"They focus all this mining power, all these random number guesses ... to try to shake it out," says Rodgers.

Based on LM Funding's agreements with the pool, it gets a steady cut of the 6.25 bitcoins when the pool scores a hit. Rodgers says LM Funding nets more than one bitcoin per day (423.4 in 2023). It sold hundreds of them, and as of Feb. 15 it's holding about 127.

"Our biggest thing is we like to get paid regularly," says Rodgers.

The flipside to the value of getting paid regularly in the world of bitcoin is the coin's scarcity.

The anonymous bitcoin founder likely thought a finite number of bitcoin was needed to have value. There are fewer than 2 million bitcoins left to mine, with more than 19 million in someone's possession. Later this year, the number of bitcoins per reward gets cut in half by the bitcoin program, to 3.125. (This is called "halving.")

That finite scarcity of bitcoin drives its value, says Dorrell.

The limited bitcoin supply, Dorrell says, compares favorably to the U.S. dollar, which is being overprinted. And the U.S. debt of $34.2 trillion makes bitcoin more attractive, he adds. "I think a lot of people are tired of government-backed money," says Dorrell.

The consensus seems to be bitcoin will stick around — and increase in value. In early January, to cite one example, Cathie Wood, the St. Pete-based CEO of Ark Invest, told CNBC that Bitcoin could hit $1.5 million per coin by 2030.

Rodgers is bullish in the short term, guessing bitcoin will trade for as much as $150,000 in 2025 — more than triple the average January value.

Beyond bits

Even as LM Funding's mining machines do their thing, the company's legacy business remains in operation. And it has a few other side business lines.

One example: It bought stock in SeaStar Medical Holding, which invented a device that fights hyperinflammation in the body. That device is being further tested and the stock is an asset listing on LM Funding's balance sheet.

As for the bitcoin business, Rodgers says LM Funding could spin it off as its own company.

After Rodgers spoke to Business Observer, it was off to New York City, likely to drum up support and convince some investors that LM Funding's stock was undervalued. The LMFA stock had been trading at about 44 cents per share then. On Feb. 15, it was on an upward trajectory past 60 cents.

The company's market cap was less than $6 million when Rodgers spoke to the Business Observer. That range of value irks Rodgers, as the company's bitcoin value alone was close to that.

Rodgers says the company has about $3 million in cash assets and about $4 million in SeaStar stock. On Feb. 15, it held 126.8 bitcoins, or about $6.6 million. LM Funding's market cap rose to about $9 million that day.

And it owns 6,000 very attractive bitcoin miners. (The company recently bought another 300 machines for $1.1 million — more than $3,600 per unit.)

"People offer us money for them every day," says Rodgers, noting the machines have a good resale value — thanks to bitcoin's strength.

LM Funding could liquidate for much more than what was the late January market cap, Rodgers says.

"But the reality is," says Rodgers, "6,000 bitcoin machines, and what we believe the bitcoin market will be in the next year and a half, are going to be worth a lot more than that."