Over the past year CleanSpark (Nasdaq: CLSK) was hit, dropping from a 52-week high of $23.60 to a 52-week low of $3.75. All this came in response to the drop in the price of Bitcoin (BTC-USD), which is based on weak economic conditions that plagued the markets.
This is especially true of the high-growth assets now being bundled with Bitcoin by investors relatively new to the sector, who base their investment strategies on the movement of recently soared interest rates, which has lowered their estimations. on future cash flows.
Thus, this has sent the share price of CleanSpark and its peers down in tandem with Bitcoin’s price action, resulting in what I believe to be a temporary but significant drop in its share price. In this article we’ll look at how new bitcoin investors and bitcoin miners are trading, and some of the steps CleanSpark has taken recently to position itself for the inevitable bitcoin price bounce.
How is Bitcoin 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 that continued to HODL Bitcoin, and the newer players, represented by wealthy individuals, large financial institutions and hedge funds.
The reason this matters is that early adopters still view Bitcoin as a store of value, while institutional investors consider Bitcoin a high-growth asset, and trade it accordingly. This means that HODLs, for the most part, do not sell their positions, while traditional investors trade them in a similar way that they trade technical stocks.
On the other hand, bitcoin miners like CLSK can adopt both mindsets. Some miners continue to hold their bitcoins, while others sell some to increase their working capital.
Institutional and high net worth traders traded bitcoin based on rising interest rates. Because they view Bitcoin the same way they view high-growth stocks, they use what’s called a discounted cash flow model, or DCF, to analyze and predict potential future prices. This basically means that as interest rates rise, they review their future cash flows downward. Just like stocks, bitcoin is re-priced in relation to an increase in interest rates. As a result, traditional investors are selling bitcoin for the same reasons they are selling tech stocks. I see some early Bitcoin users arguing that this is the wrong way to view and trade Bitcoin, and I agree with them. However, it does not matter. This is how Bitcoin is traded, and it should be understood this way by those of us who think it is the wrong way to trade it.
This may sound negative, but in fact, this provides a good opportunity to take positions not only in Bitcoin, but in Bitcoin mining such as CLSK, which, when Bitcoin price inevitably rebounds, will be strong beneficiaries of the move.
With that in mind, let’s take a look at some of the recent updates associated with CLSK.
In early September 2022, CLSK acquired 10,000 Bitmain Antminer S19j Pro miners for $28 million, after discounts and credits were applied.
CLSK expects to receive units in the latter part of October or early November 2022.
The total number of CLSK bitcoin miners has exceeded 40,000, producing around 14.9 bitcoins per day and a hash rate of 3.8 eh/s.
The company reported in early September that it had mined 395 bitcoins in August. CleanSpark also announced that it has entered into a deal to acquire Mawson’s Sandersville for $33 million. The transaction is expected to increase the company’s hash rate by 1.4 EH/s by the end of 2022; 2.4 EH/s in the first part of 2023, and an additional 7.0 EH/s by the end of 2023. Assuming the company succeeds in its forecast, it will help bring total EH/s to more than 22 by the end of 2023 This would also move it To the market leaders of EH/s, based on the vision we have today.
As I write, the Sandersville site has the capacity to support up to 24,108 miners. After the expansion is completed, it will support 70,000 miners. This is where the 7.0 increase in EH/s will come near the end of 2023.
CleanSpark said it also acquired 6,468 ASIC Mining from Mawson for $9.5 million, in an all-cash deal. Combined, the two acquisitions will cost $42.5 million.
For those who may have missed it, CLSK announced in August that it was selling its energy assets, which is a good move in my opinion.
The last update I wanted to include was regarding price/sales. On a TTM basis, the last one was 1.29, while it was 1.52 on a front-wheel drive basis. These are not big numbers, but they are not bad, especially in the current economic environment in which the company operates.
In the past, it has stated that CLSK does not have a clear competitive advantage over its peers, and could be at a disadvantage due to higher costs and potential shrinkage in its margins.
Since that time, the company has made some significant changes, and if it is able to implement its plan within the next 18 months or so, it could push itself near the top of the bitcoin mining pile, depending on the moves its peers make.
When considering taking a position in CLSK, consider the fact that there are new investors making buy and sell decisions based on the previously mentioned DCF model. As long as interest rates continue to rise, the price of Bitcoin and CLSK will remain under pressure.
But, if the Fed slows its pace of rate hike, that will be a positive catalyst for CleanSpark.
In the long term, I like Bitcoin’s prospects. Even as institutional investors temporarily alter the investment dynamics, once bitcoin bullish trading continues, bitcoin should outperform other asset classes and deliver significant returns for bitcoin miners like CLSK.
I’m much more positive about CLSK than I was when I covered it recently because of the moves it has taken to increase EH/s by the end of 2023. My guess is that Bitcoin will likely 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 the EH/s will be during different periods of Bitcoin operation; which will determine the strength of its performance.