What happened
Shares of CleanSpark (CLSK 10.99%) are on the rise today and it could be related to the bitcoin mining update it provided yesterday. As of 1:30 p.m. EST, CleanSpark stock was up 30%. In its press release, the company said it has mined almost 35 bitcoin tokens since Dec. 10. This is particularly interesting because the price of bitcoin has surged over 80% during this same time period. In fact, bitcoin hit an all-time high over $35,000 today.
As bitcoin rises, bitcoin mining stocks are staying hot in general. CleanSpark's peers Riot Blockchain (RIOT 23.11%) and Marathon Patent Group (MARA 6.36%) are also on the rise today. As of 1:30 p.m. EST, Riot Blockchain stock was up 7% and Marathon stock was up 25%.
Image source: Getty Images.
So what
CleanSpark is an energy technology company, but it acquired bitcoin miner ATL Data Centers in December. The acquisition cost the company $19.4 million but seems to already be paying off. In just under a month since the acquisition, CleanSpark has generated revenue of $873,000 from bitcoin operations. If it can generate revenue like this over the next 11 months, then it acquired ATL Data Centers for a forward price-to-sales ratio under two.
CleanSpark dove into bitcoin mining because it's an energy-intensive process, and the company's technology is designed to make electrical grids more efficient. If it can reduce energy expenses in bitcoin mining, it validates its software.
In CleanSpark's press release yesterday, it provided an incredibly useful metric: its breakeven price. Right now, the company says it can mine bitcoin profitably when the price is over $6,000. Considering bitcoin surpassed $35,000 today, that's big news.
Over the past six months, bitcoin mining stocks have significantly outpaced bitcoin's otherwise impressive gains. CLSK data by YCharts
It's important to note that CleanSpark's bitcoin-mining operations are small compared to Riot Blockchain and Marathon Patent Group. Mining power is measured by bitcoin's hashrate. According to Blockchain.com, the current total hashrate of the bitcoin blockchain network is estimated at almost 150 million terahashes per second (TH/s), which is equivalent to 150,000 petahashes per second (PH/s) or 150 exahashes per second (EH/s).
CleanSpark hopes to be up to 300 PH/s soon. For comparison, with its recent acquisition of 15,000 new mining machines, Riot Blockchain is up to 3.8 EH/s -- more than 12 times CleanSpark's mining power. And on Jan. 5, Marathon announced it's pooling its power with fellow miner DMG Blockchain Solutions to bring its combined power up to a whopping 10.36 EH/s -- about 7% of all the mining power out there.
All this means is Riot Blockchain and Marathon's new mining pool can mine far more bitcoin tokens than CleanSpark. And while we still don't know what Riot Blockchain's and Marathon's exact breakeven price is, I would assume it's in the same ballpark as CleanSpark. Therefore, as bitcoin keeps rising, so too does the gross-profit potential for these companies. And since Riot Blockchain and Marathon are larger operations, they benefit more.
Image source: Getty Images.
Now what
So just how high could bitcoin go? JPMorgan Chase surprised many recently when analyst Nikolaos Panigirtzoglou floated a price of $146,000 -- more than four times the current price of bitcoin -- according to Bloomberg. Of course, Panigirtzoglou meant for bitcoin to reach that price over the long term, not necessarily in 2021. But bitcoin over $100,000 is a tantalizing proposition.
The future price of bitcoin is a tricky subject. Cryptocurrencies like bitcoin are fundamentally different from stocks. Therefore, the rules to determine future prices are different. For example, a stock can go up as its business succeeds in the real world. If you find a reasonably valued stock profitably growing revenue, chasing a global opportunity, and managed by a good team, that would be a prime candidate to beat the market over the long term.
By contrast, cryptocurrencies don't have the same tangibles as businesses. Therefore, I use the economic principle of supply and demand to make my best guess for future token prices. Many tokens have a limited supply -- bitcoin's supply is estimated at around 900 tokens per day right now. But supply is only half the equation. Demand has to outpace supply for the price to go up.
Many cryptocurrencies have advantages and may be better at solving real-life problems like cross-border payments and smart contracts. However bitcoin is one of the only cryptocurrencies with enough name recognition for me to believe it will be in demand going forward. And with companies like MicroStrategy and Square buying bitcoin tokens recently, there appears to be growing validity to my humble opinion.
