What happened
Shares of Parc Glan (NASDAQ: CLSK) shot higher Tuesday on news that it had acquired more tools to mine bitcoin. The company is a technology company in the energy sector, but expanded its business to bitcoin when it acquired a bitcoin mining operation called ATL Data Centers earlier in December. More tools allow more bitcoin to be mined, which is why CleanSpark stock was up 18% today.
Bitcoin miner Blockchain riot (NASDAQ: RIOT) It also announced that it is increasing its operations. He managed 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 a bit understandable.
Finally, a bitcoin miner Marathon Patent Group (NASDAQ: MARA) it could have moved based solely on these other two stocks. It upgraded mining operations earlier in the month, but there was nothing worth noting to explain its 22% jab today.
Image source: Getty Images.
So what
For those who don’t know how bitcoin works, here’s an oversimplified overview. The network is designed to facilitate the movement of tokens, with a ledger recording who always owns what bitcoin. 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 no one or company owns them all.
Computers race to record transactions first, because the winner is given brand new bitcoin as compensation. Unlocking a new bitcoin is called mining. It’s an expensive process. Companies invest in equipment that is powerful enough to outlive the rest, facilities to house the equipment, and energy to run and cool equipment.
After using 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. In perspective, 1 exa-hash is 1,000 peta-hashes. Without diving too far in the weeds, suffice to say that Riot Blockchain and Marathon have more than 10 times CleanSpark’s capacity. But this makes sense because CleanSpark’s main business is something else.
Bitcoin believers clearly like to see companies invest in bitcoin mining equipment. After all, many believe bitcoin is set to surge in 2021, which would lead to increased mining revenue for these companies. How high could bitcoin go? No one knows for sure. In fact, it could dive into everyone we know. But many are excited about the future value of bitcoin using something called a stock-to-flow model. Promoted by a Twitter user going by PlanB, bitcoin model projects could be worth more than $ 200,000 by 2024.
I am not suggesting that the stock-to-flow model for bitcoin is an infallible framework. I am only highlighting 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 that bitcoin can continue to rise, and that increased capacity will lead to unexpected profits for miners. That’s why these three stocks are up today.
Image source: Getty Images.
What now
Yesterday when bitcoin mining stocks rose, I noted that all bitcoin miners have unique cost structures and therefore should be considered on a case-by-case basis. This is illustrated by CleanSpark’s entry into the bitcoin mining space. The company’s business is primarily software for microgrids: small, decentralized, self-sustaining power systems. Essentially, CleanSpark is in the energy optimization business, and that could be useful for bitcoin mining.
CleanSpark believes it can reduce its power cost for bitcoin mining below $ 0.0285 per kilowatt hour (kw / h). That sounds low. But from a perspective, that’s the cost Marathon has already achieved at its main facility. Although one would expect CleanSpark to have a competitive advantage, that does not seem to be the case.
Reducing energy consumption and cost are among the few things that bitcoin miners like CleanSpark, Riot Blockchain, and Marathon can manage. But the most important factor is the price of bitcoin, which is completely beyond their control. For that reason, bitcoin mining investors will probably keep their eyes fixed on bitcoin and not the fundamentals for these businesses.