Shares of CleanSpark (CLSK -4.82%) shot higher on Tuesday on news that it had acquired more equipment to mine bitcoin. The company is a technology company in the energy sector, but it expanded its business into bitcoin when it acquired a bitcoin mining operation called ATL Data Centers earlier in December. More equipment allows more bitcoin to be mined, which is why CleanSpark stock was up 18% today.
Bitcoin miner Riot Blockchain (RIOT -8.69%) also announced it's increasing its operations. It was able to buy 15,000 Antminers from Bitmain for $35 million using cash on hand. The move increases the company's capacity by 65%, so the stock's 33% jump today was somewhat understandable.
Finally, fellow bitcoin miner Marathon Patent Group (MARA -7.38%) might have moved just based on these two other stocks. It upgraded mining operations earlier in the month, but there was nothing newsworthy to explain its 22% spike today.
For those who don't know how bitcoin works, here's a simplistic overview. The network is designed to facilitate the movement of tokens, with a ledger recording who owns which bitcoin at all times. Known as blockchain technology, computers voluntarily join the bitcoin network to process transactions, recording them on the blockchain. This means the bitcoin network is decentralized: Computers can be anywhere, and they aren't all owned by any one individual or company.
Computers race to record transactions first, because the winner is issued a brand-new bitcoin as compensation. Unlocking new bitcoin is known as mining. It's an expensive process. Companies invest in equipment powerful enough to outdo the rest, facilities to house the equipment, and energy to run and cool equipment.
Once it's deployed its new mining equipment, CleanSpark says its mining capacity will be 300 peta-hashes per second (PH/s). For its part, Riot Blockchain will have 3.8 exa-hashes per second (EH/s). Marathon will have 3.56 EH/s. For perspective, 1 exa-hash is 1,000 peta-hashes. Without diving too far in the weeds, suffice it to say that Riot Blockchain and Marathon have more than 10 times the capacity of CleanSpark. But this makes sense because CleanSpark's main business is something else.
Bitcoin believers obviously like to see companies investing in bitcoin mining equipment. After all, many think bitcoin is poised to surge in 2021, which would lead to increased mining revenue for these companies. Just how high could bitcoin go? No one knows for sure. Indeed, it could plummet for all we know. But many excitedly project the future value of bitcoin using something called a stock-to-flow model. Championed by a Twitter user going by PlanB, the model projects bitcoin could be worth more than $200,000 by 2024.
I'm not suggesting the stock-to-flow model for bitcoin is an infallible framework. I'm merely pointing out how bullish some are about the future price of bitcoin. This bullish sentiment raises their outlook for many cryptocurrency stocks, including bitcoin miners. In summary, investors believe bitcoin can keep soaring, and the increased capacity will lead to windfall profits for miners. That's why these three stocks are up today.
Yesterday when bitcoin mining stocks soared, I pointed out that all bitcoin miners have unique cost structures and therefore should be considered on a case-by-case basis. This is exemplified by CleanSpark's entry into the bitcoin mining space. The company's business is primarily software for microgrids: small, decentralized, self-sufficient power systems. Basically, CleanSpark is in the energy optimization business, and that could be useful for bitcoin mining.
CleanSpark believes it can reduce its power cost for mining bitcoin below $0.0285 per kilowatt hour (kw/h). That sounds low. But for perspective, that's the cost that Marathon has already achieved at its primary facility. While one would expect CleanSpark to have a competitive advantage, that doesn't appear to be the case.
Reducing energy consumption and cost are among the few things bitcoin miners like CleanSpark, Riot Blockchain, and Marathon can control. But the most important factor is the price of bitcoin, which is entirely outside of their control. For that reason, bitcoin-mining investors will likely keep their eyes fixated on bitcoin and not the fundamentals to these businesses.