CleanSpark: The Current Bitcoin Environment and Company Updates (NASDAQ: CLSK)
Over the past year, CleanSpark (NASDAQ:CLSK) has taken a beating, falling from a 52-week high of $23.60 to a 52-week low of $3.75. All this is in response to the plunge in the price of Bitcoin (BTC-USD), which is based on the weak economic conditions that have plagued the markets.
This is especially true of high-growth assets that Bitcoin has now been lumped in with by relatively new investors in the sector, who base their investment strategies on interest rate movements which of course have been rising lately, resulting in them lowering their estimates. on future cash flows.
Consequently, this has driven the share price of CleanSpark and its peers down in conjunction with the price movement of Bitcoin, which I believe is a temporary but significant share price decline. In this article, we’ll take a look at how new investors are trading Bitcoin and the Bitcoin miners, and some of the steps CleanSpark has recently taken to position itself for the inevitable rebound in the price of Bitcoin.
How Bitcoin is valued and traded
The first thing you need 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.
Why this matters is that early adopters still view Bitcoin as a store of value, while institutional investors view Bitcoin as a high-growth asset, and trade it accordingly. That means those who HODL mostly don’t sell their positions, while traditional investors trade it the same way they trade tech stocks.
Bitcoin miners like CLSK, on the other hand, can embrace both mindsets. Some miners continue to hold Bitcoin, while others sell some to raise working capital.
Institutional traders and high net worth traders have been trading Bitcoin based on rising interest rates. And since they view Bitcoin the same way they view high-growth stocks, they use what’s called a discounted cash flow, or DCF, model to analyze and project likely future prices. Essentially, this means that when interest rates rise, they revise future cash flows downwards. Just like stocks, Bitcoin is repriced relative to interest rate increases. The result of that is that traditional investors have sold Bitcoin for the same reasons they sell tech stocks. I see that some early adopters of Bitcoin claim that this is the wrong way to view and trade Bitcoin, and I agree with them. Still, it doesn’t matter. That’s how Bitcoin is traded, and it needs to be understood that way by those of us who think it’s 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 Bitcoin miners like CLSK, who, when the price of Bitcoin inevitably goes back, are going to be strong beneficiaries of that move.
With that in mind, let’s look at some of the latest updates related to CLSK.
In early September 2022, CLSK purchased 10,000 more Bitmain Antminer S19j Pro mining machines at a cost of $28 million, after discounts and credits were applied.
CLSK expects to take delivery of the units in the latter part of October or the beginning of November 2022.
The total number of Bitcoin miners CLSK has exceeds 40,000, producing approximately 14.9 BTC daily and a hash rate 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 agreement is estimated to increase the company’s hash rate by 1.4 EH/s by the end of 2022; 2.4 EH/s in early 2023, and a further 7.0 EH/s by the end of 2023. Assuming the company is successful in its projections, it will help bring the total EH/s to over 22 by the end of 2023 It would also throw it among the market leaders within EH/s, based on the visibility we have today.
As I write, the Sandersville site has the ability to support up to 24,108 miners. After the completion of the expansion, it will support 70,000 miners. That is where the increase of 7.0 in EH/s will come from towards the end of 2023.
CleanSpark said it is also buying 6,468 mining ASICs from Mawson for $9.5 million, in an all-cash deal. Together, the two acquisitions will cost 42.5 million dollars.
For those who may have missed it, CLSK announced in August that they were selling their energy business, a good move in my opinion.
One last update I wanted to include was regarding price/sales. On a TTM basis it was most recently 1.29, while on a FWD basis it was 1.52. These are not huge numbers, but they are not bad, especially in the current economic environment in which the company operates.
Earlier, I mentioned that CLSK had no discernible competitive advantage over its peers, and may be at a disadvantage due to rising costs and potential shrinking margins.
Since then, the company has made some significant changes, and if it is able to execute its plan over the next eighteen months or so, it could propel itself near the top of the Bitcoin mining heap, depending on the moves its peers make.
When considering taking a position in CLSK, remember that there are new investors who make 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 pace of raising interest rates, that will be a positive catalyst for CleanSpark.
In the long term, I like the outlook for Bitcoin. Even with institutional investors temporarily changing the investment dynamic, once the Bitcoin bull run continues, Bitcoin should outperform other asset classes and generate big returns for Bitcoin miners like CLSK.
I am more bullish on CLSK than when I last covered it because of the moves it made to increase EH/s by the end of 2023. My thinking is that Bitcoin will likely be in the middle of recovery by then and CleanSpark should enjoy a significant growth during that time.
The immediate question will be where EH/s will be at various periods of the Bitcoin bull run; which will determine the strength of the performance.