CleanSpark: This Obscure Bitcoin Miner Can Go Both Ways (CLSK)

CleanSpark (NASDAQ: CLSK) is a relatively unknown Bitcoin (BTC-USD) miner competing in the crypto sector. It undergoes the same struggles its peers go through as a result of the continuous downward pressure on the price of Bitcoin, and R & D around it.

That said, the company has been able to acquire more mining equipment at affordable prices, so if it can survive the affordable Bitcoin environment it now operates in, when the price of Bitcoin recovers sustainably, it can potentially take advantage of the price increase from increase in the number of miners it uses at that time.

In this article, we will look at the latest earnings figures and what the future may bring for the company and its shareholders.

The latest income figures

Revenues in Q2 increased to $ 41.6 million, up more than 4 times from $ 8.1 million generated in Q2 of 2021. Mining revenues accounted for $ 37 million of the total. Management attributed much of these gains as a result of investments in infrastructure and mining equipment. The remaining $ 4.6 million came from the energy segment, which in my opinion is increasingly irrelevant to the company; CleanSpark should sell that unit and use the capital for the operation.

Adjusted EBITDA from the previous quarter reveals how the low price of Bitcoin has affected the company’s performance. EBITDA in the second quarter fell sequentially by $ 1.8 million, as a result of falling Bitcoin prices and higher mining costs.

Year-over-year EBITDA was solid, jumping from $ 1.9 million last year in the same reporting period to $ 22.5 million in Q2 2022. Mostly I discount it due to the rapid erosion associated with weak macroeconomic conditions and crypto markets. The fall in the price of Bitcoin from Q1 2022 to Q2 2022 was reflected in the fall in net losses from a positive $ 14.5 million in Q1 to a loss of $ 170,000 in Q2. Until the price of Bitcoin sustainably turns the upside, this should be how the company performs going forward.

Although the company has found some good buys to increase the size of its mining fleet, it has also increased energy costs when they are deployed. As long as the price of Bitcoin remains subdued, it will be a challenge for the company.

In terms of balance sheet, the company had around $ 1.9 million in cash at the end of March. It also had 420 in Bitcoin at the time, with a book value of just over $ 17 million. Total liquidity at the end of the quarter was close to $ 90 million. It sold 720 Bitcoin in the quarter to finance operations.

The energy cost of extracting a Bitcoin is around $ 4500.

Expand the mining fleet and increase Bitcoin production

In mid-June 2022, CleanSpark announced that they had “taken over an existing purchase contract for 1800 Antminer S19 XP devices …”

According to the partnership with TMGcore, it includes 257 “submerged tanks designed to improve the performance of mining machines while significantly reducing their failure rate over prolonged use.”

The company expects that the new machines will increase mining capacity by over 252 petahashes per second. On July 14, 2022, the company announced that it had acquired 1,061 Whatsminer M30S machines that were already in the process of extracting Bitcoin. It stated that it would add another 93 petahashes per second to the mining capacity when the machines are delivered within the next six months or so, starting in August.

Over the past six months, the company has increased computing power by 47 percent, and production has increased by around 50 percent during the same time frame.

Growing its mining fleet over time has begun to pay off for the company, as it recovered 339 Bitcoins in June, up from the respectable 312 it recovered in May. At the end of June, CleanSpark had 561 Bitcoins, after selling 328 Bitcoins at an average price of $ 25,644 for a total of $ 8.4 million. It was significantly below the 210 Bitcoins it sold in May for an average of $ 32,639, raising $ 6.9 million. At the time of writing, the company said it has approximately 28.5,000 Bitcoin miners representing a hash rate of 2.8 EH / s.

Conclusion

After aiming through CleanSpark, I see that the company has no real competitive advantage over its peers, with the exception of low energy costs. Even there, the market has not rewarded the company for it. This may be due to the fact that costs have increased as mining capacity increases.

The question I ask is why should I take a position in CleanSpark when there are a significant number of competitors that attract much more volume? Among the eight Bitcoin miners I follow and / or have a position in, CleanSpark has the lowest volume, which generates liquidity concerns.

With lower volume, it may also not be able to take advantage of the price of Bitcoin as well as competitors that attract much more interest.

In terms of numbers, CleanSpark does well, but in my opinion it does not differ much from its peers, which raises the question of why take a position in the company when there are many other Bitcoin miners to choose from with significantly more daily volume?

One main reason I see for at least taking a small position in the company is the increasing number of mining machines it takes into use over the next six months. As it picks up speed, if the price of Bitcoin starts to rise sustainably by the end of 2022, CleanSpark will be in a good position to leverage the price with its extra capacity.

At the same time, if the price of Bitcoin takes longer to rise in price, CleanSpark may begin to feel a lot of pressure with margins declining and revenues, at best, remaining level.

For these reasons, I think CleanSpark can go both ways in terms of share price, and it can lag behind competitors if costs continue to rise and margins are reduced.

As with all Bitcoin miners, CleanSpark will move in line with the price of Bitcoin. The question is whether it will be enough to compete against their peers. At this point, I am not convinced that it will surpass them, although it will work well when the price of Bitcoin regains its upward trajectory.