When it comes to publicly traded Bitcoin (BTC -0.70%) miners, Marathon Digital (MARA 0.34%) and Riot Blockchain (RIOT 1.48%) seem to be the names that investors are most likely to be familiar with. But there's a new miner in town that investors ought to know about, because it's producing more Bitcoin than both.
Core Scientific (CORZ -7.68%) went public without much fanfare via a merger with a special purpose acquisition company (SPAC) late last year. The company produced 5,700 Bitcoin tokens for its own account in 2021, the most ever mined in a year by a publicly-traded company. (Core Scientific also mines Bitcoin on behalf of customers.) By comparison, Marathon Digital reported that it mined 4,019 Bitcoins in 2021, while Riot Blockchain mined 3,812.
Even more exciting is that Core Scientific is keeping its foot on the gas, and is on pace to mine significantly more tokens in 2022. In January and February alone, it produced a total of 2,000 Bitcoins. If it can maintain that rate, it will more than double its 2021 result this year.
Indeed, it's also increasing its lead over its competitors. Core Scientific reports it mined 3,102 Bitcoins between Dec. 1, 2021, and Feb. 28, 2022, compared to 1,319 Bitcoins for Riot Blockchain and 1,307 for Marathon Digital. And Terawulf, which went public via a SPAC merger in December at a valuation of just over $1 billion, has not yet mined any Bitcoin. As of the end of February, Core Scientific held 7,355 Bitcoins in its own account, worth about $340 million based on Friday's prices.
Not just mining
While people often think of Bitcoin mining as a commodity industry, Core Scientific has several differentiators that make it stand out, even beyond its impressive mining performance to date. It owns its own infrastructure and data centers, and these data centers are geographically dispersed in Texas, Oklahoma, North Dakota, Kentucky, North Carolina, and Georgia to mitigate risk.
Core developed its own software, Minder, to monitor its miners and increase efficiency. And it has an R&D team that is working to explore other opportunities within the blockchain space. For example, it has dabbled in staking other cryptocurrencies, which is interesting, though that effort has yet to become a material contributor to its financial results.
Can Core bounce back?
Shares of Core Scientific are down 43% from their peak, and there are several reasons for that decline. All of them seem likely to be fleeting, though.
The company officially began trading as Core Scientific in January after it merged with Power & Digital Infrastructure Acquisition Corp. But investors have soured on SPACs lately, and the miner seems to have been thrown out with Wall Street's bathwater. Unlike many recent SPAC companies, Core Scientific is actually profitable on an EBITDA (earnings before interest, taxes, depreciation, and amortization) basis, and it trades at a reasonable forward price-to-earnings ratio of 12.
Secondly, the price of Bitcoin declined sharply in early 2022, which led investors to sell off crypto miners. The leading cryptocurrency has since rebounded, though, and is again approaching the $50,000 mark. Shares of crypto miners, however, are lagging behind and could make further gains if Bitcoin continues to perform well.
Lastly, Core Scientific's board decided to end the 180-day lockup period on a large fraction of the company's shares early -- a decision that was received poorly by the market. The CEO said the board made the move in an effort to increase liquidity and trading volume for the stock, which would help it attract larger investors. This seems plausible, and insiders still own 31% of the company.
In sum, I think that most of the reasons that Core Scientific shares have slid are temporary in nature, and that long term, the company is building a best-in-class Bitcoin mining operation with some interesting other services and technologies that may become meaningful over time. Shares of Core Scientific are a speculative investment, but they look like an interesting buy for long-term, risk-tolerant investors.