If you're looking for a nonvolatile investment, stocks related to bitcoin aren't a good place to look these days. The price of bitcoin has gone up around 150% over the last three months. During that time, many bitcoin-related stocks have made big daily moves -- sometimes up, sometimes down.
Today was a down day. CleanSpark ( CLSK -2.58% ) stock fell 8% but had been down 16% earlier in the day. Shares of Xunlei Limited ( XNET 4.64% ) likewise traded 9% lower. For its part, Bit Digital ( BTBT -0.85% ) stock recovered from a 20% plummet early in the day, finishing flat.
To be clear, the only one of these three companies that has reported anything lately is CleanSpark. On Dec. 28, CleanSpark had two filings with the Securities and Exchange Commission (SEC). These filings showed that two directors increased the amount of CleanSpark stock they own. Typically, increased insider ownership is a bullish signal. However, in this case, both directors were merely compensated 740 shares each -- they didn't actually buy shares with their own cash. So this news doesn't really have an actionable takeaway for investors.
Generally speaking, stocks like CleanSpark, Bit Digital, and Xunlei Limited march to the beat of bitcoin's drum. If bitcoin is rising, they go up. If bitcoin is falling, they go down. But this generalization has limits. They rarely move by the same percentage point as bitcoin. In fact, they're often much more volatile. Therefore, predicting their movements day by day is impossible.
For example, according to CoinDesk, the price of bitcoin has changed less than 0.5% over the past 24 hours -- that's pretty stable. Nevertheless, CleanSpark, Bit Digital, and Xunlei Limited are making big moves without any news of their own. The reason for this disparity, in my opinion, is short-term traders.
As the above chart shows, these stocks are trading hands at a staggering pace, with Bit Digital's trading volume surging in particular. For perspective, the trading volumes for CleanSpark and Xunlei Limited are comparable to that of one of the biggest companies in the world: Amazon. Considering these are all small-cap stocks, it's outrageous for their trading volume to exceed that of large-cap companies like Amazon.
Due to high trading volume with these stocks, it's highly likely a large percentage of shareholders are thinking short term, looking to make some easy money. They're smart enough to know that as the price of bitcoin rises, CleanSpark, Bit Digital, and Xunlei Limited will receive greater visibility from investors. But their ultimate goal is trading in and out for outsize gains.
A company's intrinsic value doesn't change very much over short periods of time. Therefore, trading stocks over a short period has little to do with fundamentals -- you're simply hoping to outsmart some stranger on the other side of the trade. Consider that every time you buy a share, someone is selling it. And every time you sell, someone is buying. You're the smart one (or so you've told yourself) and you're counting on someone else being the greater fool.
In practice, I don't personally know anyone who trades frequently over short periods of time and consistently outperforms the market averages. That's why I advocate for investors to enlist a powerful ally to achieve superior gains: time. Over time, companies do create or destroy shareholder value, something much easier to forecast.
The three bitcoin-related companies we looked at today -- CleanSpark, Bit Digital, and Xunlei Limited -- are all very different businesses. Investors shouldn't plop down their hard-earned dollars unless they understand what each one does, how it can create value, and what could go wrong.
Here's a brief overview of each company to get you started. First, Bit Digital is a pure-play bitcoin-mining operation. The company has been mining the cryptocurrency since February, and has mined over 1,300 bitcoin tokens since then. But its operating costs are robbing it of profits, keeping me on the sideline.
Next, Xunlei Limited operates a blockchain-as-a-service business in theory. But in reality, the only part of its business that's growing is its mobile advertising segment. That doesn't inspire much confidence from me.
Finally, CleanSpark's primary business focus is related to making the consumption of electricity more efficient. Mining bitcoin is an energy-intensive process. So the company's bitcoin-mining operation is less about bitcoin and more about demonstrating the ability of its technology. Considering power consumption is a big environmental concern that's only getting worse, CleanSpark could be solving an important problem.
CleanSpark's revenue has doubled for three consecutive years. Given its business growth and the service it offers, it's the most investable of the three companies here, in my opinion. However, more in-depth (and necessary) research would shed light on the long-term value proposition.