In the last year, CleanSpark (NASDAQ:CLSK) took a hit, falling from a 52-week high of $23.60 to a 52-week low of $3.75. All of this is in response to the Bitcoin (BTC-USD) based on the weak economic conditions that have plagued the markets.
This is particularly true for high-growth assets, which Bitcoin has now been lumped in with by relatively new investors in the industry who are basing their investment strategies on developments in interest rates, which have of course been rising of late, causing them to change their estimates lowered on future cash flows.
Consequently, this has driven the stock price of CleanSpark and its peers lower in conjunction with Bitcoin’s price action, which I believe has resulted in a temporary but significant drop in the stock price. In this article, we take a look at how new investors are trading Bitcoin and Bitcoin miners, and some of the steps CleanSpark has recently taken to position itself for the inevitable Bitcoin price rally.
How Bitcoin is valued and traded
The first thing to understand about current bitcoin investors is that there are now two different types. There were the early adopters, who continue to HODL Bitcoin, and the newer players, represented by wealthy individuals, large financial institutions, and hedge funds.
As for why this is so important, early adopters still see Bitcoin as a store of value, while institutional investors view Bitcoin as a high-growth asset and trade accordingly. That means those who aren’t selling HODL for the most part are selling their positions, while traditional investors are trading them in a manner similar to tech stocks.
Bitcoin miners like CLSK, on the other hand, can embrace both ways of thinking. Some miners continue to hold their bitcoin while others sell some to raise working capital.
Institutional and wealthy traders have traded bitcoin on the basis of rising interest rates. And because they view Bitcoin the same way they would any high-growth stock, they use what they call a discounted cash flow, or DCF, model to analyze and forecast likely future prices. Essentially, this means that rising interest rates will revise future cash flows downward. Just like stocks, bitcoin reprices relative to rate hikes. The upshot of this is that traditional investors have been selling Bitcoin for the same reasons they are selling tech stocks. I see some early adopters of bitcoin arguing that this is the wrong way to view and trade bitcoin, and I agree with them. Still, it doesn’t matter. This is how bitcoin is traded and how it needs to be understood by those of us who think it is the wrong way to trade it.
This may seem negative, but in reality this presents a good opportunity to take positions, not only in Bitcoin but also in Bitcoin miners like CLSK who, if the price of Bitcoin inevitably recovers, will be strong beneficiaries of this move.
With that in mind, let’s take a look at some of the recent updates related to CLSK.
In early September 2022, CLSK acquired 10,000 more Antminer S19j Pro mining machines from Bitmain at a cost of $28 million after rebates and credits.
CLSK expects delivery of the units in late October or early November 2022.
The total number of bitcoin mining machines CLSK has exceeds 40,000, producing about 14.9 BTC daily and a hashrate of 3.8 EH/s.
The company reported in early September that it mined 395 bitcoin in August. CleanSpark also announced that it has entered into an agreement to acquire Mawson’s Sandersville site for $33 million. The deal aims to increase the company’s hashrate by 1.4 EH/s by the end of 2022; 2.4 EH/s in early 2023 and another 7.0 EH/s by the end of 2023. Assuming the company is successful with its forecasts, this would help push the total EH/s to over 22 by the end of 2023 to bring that would also make it one of the leaders in the EH/s space based on the visibility we have today.
As of this writing, the Sandersville site can support up to 24,108 miners. After the expansion is complete, it will support 70,000 miners. From there the 7.0 increase in EH/s will come towards the end of 2023.
CleanSpark said it is also acquiring 6,468 mining ASICs from Mawson for $9.5 million in an all-cash deal. Together, the two acquisitions will cost $42.5 million.
For those who might have missed it, CLSK announced in August that it was selling its energy business assets, a good move in my opinion.
One last update I wanted to add was on the price/sale. Most recently it was 1.29 on a TTM basis and 1.52 on a FWD basis. Those aren’t great numbers, but they’re not bad, especially in the current economic environment in which the company operates.
In the past, I’ve mentioned that CLSK had no discernible competitive advantage over its peers and could be at a disadvantage due to rising costs and a possible decline in its margins.
Since then, the company has made some significant changes, and if it’s able to execute on its plan over the next 18 months or so, it could catapult itself to the top of the bitcoin mining pile depending on the moves of its competitors.
If you are considering a position in CLSK, keep in mind that there are new investors making buy and sell decisions based on the DCF model mentioned earlier. As long as interest rates continue to rise, the price of Bitcoin and CLSK will remain under pressure.
But if the Federal Reserve slows the rate hike pace, it would be a positive catalyst for CleanSpark.
In the long term, I like the prospects for bitcoin. Even if institutional investors temporarily change investment dynamics, once the bitcoin bull run continues, bitcoin should outperform other asset classes and generate big returns for bitcoin miners like CLSK.
I am more positive for CLSK than when I last covered it due to the steps it has taken to increase EH/s by the end of 2023. I think Bitcoin will likely be in the midst of its recovery by this point, and CleanSpark should be enjoying significant growth during this time.
The immediate question will be where its EH/s will be during different periods of Bitcoin’s bullish run; that will determine the strength of his performance.