CleanSpark: The Current Bitcoin Environment And Company Updates

Sep. 16, 2022 5:09 PM ETCleanSpark, Inc. (CLSK)4 Comments
Gary Bourgeault profile picture
Gary Bourgeault
12.71K Followers

Summary

  • How to understand the current Bitcoin environment and how it's changed from several years ago.
  • Bitcoin is still in the early stages of adoption, and will remain volatile for the foreseeable future.
  • How this will impact CleanSpark in light of changes in the company over the last couple of months.

Bitcoin Cryptocurrency concept

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Over the last year CleanSpark (NASDAQ:CLSK) has taken a beating, dropping from a 52-week high of $23.60, to a 52-week low of $3.75. All of this is in response to the plunge in the price of Bitcoin (BTC-USD), which is based upon the weak economic conditions that have plagued the markets.

This is especially true of high-growth assets that Bitcoin has now been lumped together with by relatively new investors in the sector, which base their investment strategies on the movement of interest rates that have of course 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, bringing about what I believe is temporal but significant decrease in its share price. 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 being valued and traded

The first thing to understand about current Bitcoin investors is there are now two different types. There were the early adopters that continue to HODL Bitcoin, and the newer players, represented by wealthy individuals, large financial institutions and hedge funds.

Why this matters is early adopters still view Bitcoin as a store of value, while institutional investors consider Bitcoin a high-growth asset, and trade it accordingly. That means those that HODL, for the most part, don't sell their positions, while traditional investors trade it in a similar way they trade tech stocks.

Bitcoin miners like CLSK, on the other hand, can embrace both mindsets. Some miners continue to hold their Bitcoin, while others sell some to raise operating capital.

Institutional and high-wealth traders have been trading Bitcoin based upon rising interest rates. And since they view Bitcoin in the same way they view high-growth stocks, they use what is called a discounted cash flow, or DCF, model to analyze and project probable future prices. Essentially that means as interest rates rise they downwardly revise future cash flows. Just like stocks, Bitcoin is repriced in relationship to interest rate increases. The result of that is traditional investors have been selling Bitcoin for the same reasons they sell tech stocks. I see some early adopters of Bitcoin argue that this is the wrong way to view and trade Bitcoin, and I agree with them. Nonetheless, it doesn't matter. That is how Bitcoin is being traded, and it has to be understood that way by those of us that think it's the wrong way to trade it.

This may appear negative, but in reality, this provides a good opportunity to take positions, not only in Bitcoin, but Bitcoin miners like CLSK, which, when the price of Bitcoin inevitably rebounds, are going to be strong beneficiaries of that move.

With that in mind, let's look at some of the recent updates associated with CLSK.

Recent updates

In early September 2022, CLSK acquired 10,000 more Bitmain Antminer S19j Pro mining machines at a price of $28 million, after discounts and credits were applied.

CLSK expects to take delivery of the units in the latter part of October or early November 2022.

The total number of Bitcoin mining machines CLSK has surpasses 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 it has entered into a deal to acquire Mawson's Sandersville site for $33 million. The deal is projected to boost the company's hashrate by 1.4 EH/s by the end of 2022; 2.4 EH/s in the early part of 2023, and an additional 7.0 EH/s by the end of 2023. Assuming the company is successful in its projections, it would help bring the total EH/s to over 22 by the end of 2023. That would also catapult it to among the market leaders in EH/s, based upon the visibility we have today.

As I write the Sandersville site has the capability of supporting up to 24,108 miners. After the completion of the expansion, it will support 70,000 miners. That's where the 7.0 increase in EH/s will come from near 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. Combined, the two acquisitions will cost $42.5 million.

For those that may have missed it, CLSK announced in August that it was selling it energy business assets, a good move in my opinion.

One last update I wanted to include was in regard to Price/Sales. On a TTM basis, it was most recently as 1.29, while on a FWD basis, it was 1.52. These aren't great numbers, but they're not bad, especially in the current economic environment the company is operating in.

Conclusion

In the past, I've mentioned that CLSK had no discernable competitive advantage over its peers, and could be at a disadvantage because of rising costs and potential shrinkage of its margins.

From that time the company has made some significant changes, and if it is able to execute on 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, keep in mind the fact there are new investors that make buying and selling decisions based upon the DCF model mentioned earlier. As long as the interest rates continue to increase, the price of Bitcoin and CLSK will remain under pressure.

But, if the Federal Reserve slows down its pace of increasing interest rates, that would be a positive catalyst for CleanSpark.

Over the long term I like the prospects for Bitcoin. Even with institutional investors temporarily changing the investing dynamic, once the Bitcoin bull run continues, Bitcoin should outperform other asset classes and generate big returns for Bitcoin miners like CLSK.

I'm more positive for CLSK than when I last covered it because of the moves it made to increase EH/s by the end of 2023. My thought is Bitcoin will probably be in the midst of its recovery at that time, and CleanSpark should enjoy some significant growth during that time.

The immediate question will be where its EH/s will be during various periods of the bull Bitcoin run; that will determine the strength of its performance.

This article was written by

Gary Bourgeault profile picture
12.71K Followers
I am a former investment advisor and owner of several businesses. These days I invest only for myself while continuing to write on a variety of financial and economic topics.

Disclosure: I/we have a beneficial long position in the shares of CLSK either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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