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Why SOS and The9 Skyrocketed Today While CleanSpark Lagged Behind Other Bitcoin Miners

By Anders Bylund - Mar 9, 2021 at 4:10PM

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The rising Bitcoin tide did not lift all boats equally.

What happened

Shares of Bitcoin (BTC -3.03%) rose 6.8% over the last 24 hours, as of 2:55 p.m. EST. Other major cryptocurrencies also surged higher, led by an 18% jump in Binance Coin (BNB -1.65%). These lively gains lit a fire under cryptocurrency-related stocks, driving several sector stalwarts more than 20% higher. Bitcoin traders were ready to brush off the damage from the past weekend's dramatic price drops, supported by a bipartisan House bill that seeks to clarify the legal framework for trading and owning digital assets in the U.S.

A handful of crypto stocks also had market-moving news of their own. 

So what

Bitcoin miners CleanSpark (CLSK -3.42%) and The9 (NCTY -3.85%) are buying more mining hardware, lifting their shares as much as 27.1% and 45.9% higher, respectively.

More specifically, CleanSpark is buying 1,150 new Bitcoin miners which will boost the company's hashrate capacity by 19% when they are delivered in June 2021. The9 signed three contracts with unrelated Bitcoin mining businesses, picking up 10,250 mining systems in exchange for 5.9 million shares of The9 stock.

Canaan (CAN -8.28%), which makes specialized cryptocurrency mining processors and systems, didn't report any news, but CleanSpark may very well have placed at least some of their orders from this company. Canaan shares jumped as much as 49.3% higher.

A man stands on a road that bends up to a huge question mark in the sky. The pavement is marked Cryptocurrency.

Image source: Getty Images.

Data analytics company SOS Limited (SOS -4.98%), which also runs a large cryptocurrency mining operation, lagged behind its peers with a 9.5% gain at press time. Two noted short-sellers targeted SOS in separate reports this morning, calling the company a "shell game" that is investing far less in mining equipment that management has claimed.

The short-seller attacks are not new. In fact, today's action was triggered by SOS's management responding to earlier accusations of fraud from shorting firms Hindenburg Research and Culper Research. SOS described how and when it received or plans to receive three batches of high-powered Bitcoin and Ethereum mining rigs from a U.S. affiliate.

In response to management's explanation, Culper argued that SOS admitted to buying a different class of mining hardware than originally stated. Culper doubled down on its claims that SOS is committing fraud by overstating the mining power it controls. Hindenburg largely nodded along with Culper's analysis.

Now what

I find it troubling when a roughly 7% Bitcoin gain translates into much larger single-day returns for most of the cryptocurrency mining and management stocks. These tickers are setting themselves up for a tortuous correction somewhere down the line. It won't even have to be a cryptocurrency crash like the huge retreat of 2018. A simple slowdown of the recent surge could be enough to trigger a round of painful haircuts.

By throwing more hardware at their mining operations, CleanSpark and The9 slowed down my racing pulse by a few beats per minute. However, their gains were also much larger than the additional computing power would suggest. As for Canaan, we can't even be sure that any of today's large mining-rig orders included new equipment from this company. Lifting the stock by nearly 50% without clear evidence of a positive business development strikes me as odd.

I do believe that most investors should have at least a passing interest and a small holding of cryptocurrencies, but the miners and hardware specialists all look too risky. There are many ways to work around the problem, perhaps by investing in exchange-traded funds such as Grayscale Bitcoin Trust (GBTC -4.04%) or by going directly for the digital coins.

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Stocks Mentioned

Bitcoin Stock Quote
Bitcoin
BTC
$29,286.60 (-3.03%) $-914.65
The9 Limited Stock Quote
The9 Limited
NCTY
$1.50 (-3.85%) $0.06
Grayscale Bitcoin Trust (BTC) Stock Quote
Grayscale Bitcoin Trust (BTC)
GBTC
$18.74 (-4.04%) $0.79
Canaan Inc. Stock Quote
Canaan Inc.
CAN
$3.10 (-8.28%) $0.28
CleanSpark, Inc. Stock Quote
CleanSpark, Inc.
CLSK
$5.65 (-3.42%) $0.20
Ethereum Stock Quote
Ethereum
ETH
$1,962.72 (-3.14%) $-63.72
Binance Coin Stock Quote
Binance Coin
BNB
$303.82 (-1.65%) $-5.10
SOS Limited Stock Quote
SOS Limited
SOS
$0.37 (-4.98%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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