1 Bitcoin Miner You Cannot Afford To Miss

Shares of bitcoin miner CleanSpark, Inc. (NASDAQ:CLSK)  soared more than bitcoin over the past six months. However, the stock lost its momentum over the past month and declined by more than 11%.

The stock underwent significant volatility due to their correlation with bitcoin’s movement. Similar to many other crypto miners, shares saw a massive rally that was primarily driven by the optimism surrounding the launch of bitcoin ETFs earlier this year.

However, concerns over the upcoming decline in miner rewards with the bitcoin halving in April led to the stock to pullback lately.    

Key Points

• With a record 7,391 bitcoins mined in 2023 and plans to double its hashrate through new facility acquisitions, CleanSpark has shown strong growth in its mining operations, despite competitive pressures.
• CleanSpark’s stock experienced significant growth due to optimism around spot bitcoin ETF approvals but faced an 11% decline over the past month amid concerns over the upcoming decrease in bitcoin mining rewards.
• Despite bitcoin’s recent surge to new highs, its inherent volatility and potential for near-term pullbacks could pressure CleanSpark’s stock, especially considering the anticipated impact of the bitcoin halving event.

7,391 Bitcoins Can’t Be Wrong, Can They?

Despite significant competition, CleanSpark’s mining results for 2023 were solid. The company looks poised for continued growth.

The company’s bitcoin mining activity reached new highs, with 7,391 bitcoins mined in 2023, up 60% from the prior year. Holdings of bitcoin increased by more than 1,200% year over year to 3,002. Management regarded 2023 as a “transformative year” for the company.

The company reported its February bitcoin mining update on March 1, registering as another successful month with steady growth in its hashrate. CleanSpark’s hashrate for the month grew 60% to over 16 EH/s. It exceeded the global hashrate growth, marking a significant achievement.

Its bitcoin production increased by 12%, while total bitcoin holdings were at 4,218 as of February 29. Also, proceeds from the sale of bitcoins came in at $140,000 (approximately). The company sees higher efficiency in its fleet ahead of the halving expected in April.

In addition, in February, the company announced that it would acquire four new mining facilities — three turnkey operations in Mississippi and one under-construction facility in Dalton. These acquisitions are expected to help the company 2x its hashrate.   

Revenue Up 165%

For the fiscal first quarter ended December 2023, CleanSpark’s revenue increased 165% year-over-year to $73.79 million, driven by favorable bitcoin production and performance. Plus, the company returned to profitability with net income of $25.91 million, marking a substantial improvement from a loss of $29.03 million in the year-ago quarter.

Also, its adjusted EBITDA for the quarter was $69.09 million compared to a negative $1.97 million a year ago. CleanSpark’s operational capabilities position it well to maintain steady growth in the coming quarters.

Furthermore, its stable balance sheet position should help ensure strength following the upcoming bitcoin halving. As of December 31, 2023, CleanSpark’s cash balance stood at $48.46 million.

Its bitcoin holdings stood at $127 million, while total mining assets came in at $484 million. The company reported current assets and liabilities of $181.71 million and $42.39 million, respectively. It also reported $139.32 million in working capital. 

Will Bitcoin’s Near-Term Prospects Keep CleanSpark Stock Under Pressure?

Bitcoin rose to a new all-time high of $73,664 earlier last week amid positive sentiments and record inflows in spot bitcoin ETFs. This marked the fourth record high in six days for this digital currency.

The crypto market made a solid comeback last year after the downturn in 2022. Bitcoin soared by more than 150% in 2023 and looks like it is in the middle of a crypto bull run.

However, bitcoin tends to be highly volatile and could enter a waning phase in the near term. Swissblock, a digital assets analytical firm, predicts a pullback soon as it sees bitcoin price falling significantly from the current highs to around $58,000-$59,000.

Bitcoin mining companies are highly susceptible to bitcoin’s performance. However, while bitcoin is still up more than 50% year to date, most stocks have been trading flat or down in 2024. Even if CleanSpark is able to offset the impact of bitcoin halving by strengthening its hashrate, the potential pullback of bitcoin could keep the stock under pressure.

Will Regulatory Hurdles Hurt Performance?

Following bankruptcies of popular crypto exchanges and rising frauds, U.S. regulatory bodies decided to crack down on the crypto market. Last year, crypto miners saw 26 enforcements by the SEC. Regulators want to bring miners under a regulated framework.

While the SEC explains that its moves are meant to reduce scams and protect investors, many find them overly strict. The SEC filed lawsuits against several crypto companies that have allegedly failed to comply with the securities law. Scrutiny is expected to rise further in the coming years.

The regulatory strictness could negatively impact the crypto market, affecting the performance of miners like ClearSpark.

Is CleanSpark Poised to Rebound?

Out of the five analysts rating the stock, four recommended buying, while one advised holding it. The average price target for the stock is $17.20, indicating a marginal upside from the current level.

Despite losing over the past month, CleanSpark’s valuation looks relatively expensive. The stock trades at a trailing-12-month price-to-sales (P/S) ratio of 9.68, much higher than the industry average. While it’s still trading at a discount to its 5-year average P/S ratio of 12.26, the uncertainties surrounding the company’s prospects don’t justify the current valuation.

As a result, the possibility of the stock’s rebound is very low until it is able to handle the impacts of the upcoming bitcoin halving well.