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CleanSpark (NASDAQ:CLSK) is the second Bitcoin (BTC-USD) mining company I want to hold for the long term as I believe CLSK stock is quite undervalued at current price levels.
CLSK shares are up 138% year-to-date, significantly outperforming both the S&P 500 (SPY) and NASDAQ 100 (QQQ) with a big gap.
Data from YCharts
Many of my followers are aware of my bullish stance on Marathon Digital Holdings (MARA), which I reported on here in one of my previous articles.
CleanSpark benefits from many of the same tailwinds because it operates in the same industry. However, CleanSpark has been aggressively accumulating Bitcoin in recent months, while Marathon Digital has been reducing its Bitcoin holdings.
Led by co-founder and CEO Zachary Bradford, CleanSpark is another founder-led crypto company that could surprise investors during the upcoming crypto bull market run.
CLSK company overview (cleanspark.com)
Overview of the CleanSpark company (cleanspark.com)
The company owns 100% of its Bitcoin mining facilities in Georgia and co-owns another facility in New York.
It is possible that Bitcoin mining stocks could see a short-term sell-off due to the massive rise in Bitcoin spot ETFs. If this happens, I think it would make CLSK stock even more attractive.
CleanSpark Q3 2023 business update
CleanSpark achieved some key milestones in the third quarter of 2023 as the company plans to increase its Bitcoin mining hash rate to 16 EH/s in the next few quarters. The company achieved record revenue of $45.5 million (up 47% year-over-year) while tripling its hash rate year-over-year to 9 EH/s.
Net losses were $14.2 million in Q3 2023 compared to $29.3 million in Q3 2023, meaning CleanSpark will return to profitability as early as Q2 2024 due to the upcoming Bitcoin halving should.
CleanSpark ended the third quarter of 2023 with 1,200 BTC on the balance sheet and a cash balance of $90 million.
What’s interesting is that CleanSpark, like most BTC miners, provides monthly updates on its mining operations.
As of October 31, 2023, CleanSpark has mined 633 BTC in October 2023, increasing its BTC stack to 2,311. With nearly 89,000 Bitcoin miners in use, the company surpassed the 10 EH/s milestone.
CLSK update October 2023 (cleanspark.com)
Those are impressive numbers considering CleanSpark shares are trading at under $5 while I’m writing this at a market cap of under $1 billion.
Why I’m bullish on CleanSpark stock
Investors misunderstand the potential of the Bitcoin mining industry because it is a relatively small sector that does not have a lot of invested capital.
Marathon Digital (MARA) is the largest publicly traded Bitcoin mining company with a market cap of $2 billion. It’s understandable that small-cap companies are ignored by larger, more profitable companies like Nvidia (NVDA) or Tesla (TSLA).
However, this is exactly why I am bullish on companies like CleanSpark, as the company offers huge upside potential at a relatively low valuation.
CleanSpark mined 633 BTC at around 10 EH/s in October. If the company scales production to 16 EH/s, I expect mining production to increase by around 60% to around 1,000 BTC mined per month.
At current Bitcoin prices, CleanSpark could generate around $37,000,000 million in monthly revenue, or just over $100 million per quarter.
Many Bitcoin experts expect the price of Bitcoin to skyrocket following the Bitcoin halving in April 2024 due to a supply shock, when the amount of minable BTC per block drops from 6.25 to 3.125 every 10 minutes.
Things could get interesting for CleanSpark if the Bitcoin price rises sharply in the next 12 to 24 months.
The catalyst for the Bitcoin halving in April 2024
The Bitcoin halving event is the most important catalyst for Bitcoin price as it occurs every four years and halves the amount of Bitcoin issued daily.
The current BTC block reward is 6.25, but BTC miners like CleanSpark will receive 3.125 BTC per block after April 2024.
While I expect CleanSpark to mine less BTC in the future, the company will benefit from higher BTC prices as well as transaction fees and ordinal fees.
For example, someone paid over $3 million (83.65 BTC) in transaction fees to send 128 BTC on November 23, 2023. Miner AntPool received the block reward of 83 BTC for completing the transaction.
This is a good example of how higher transaction fees will offset the declining BTC block reward for CleanSpark and other miners in the future.
I mentioned earlier that CleanSpark could scale to around 3,000 BTC mined per quarter in the near future, which would equate to around $100 million in quarterly revenue at current Bitcoin price levels.
My Bitcoin price prediction for 2025 is around $370,000 per coin, which is about 10x the current price level.
Assuming CleanSpark’s BTC production remains stable over the next two years, the company could generate up to $1 billion per quarter in mining revenue.
CleanSpark’s annual revenue in 2025 could be $4 billion per year at the peak of the bull market, making CLSK stock look extremely cheap at current price levels.
Using CLSK’s current price-to-earnings ratio of 2.65, I predict a future market cap of around $8 billion to $10 billion at the peak of the crypto bull run in summer 2025.
That would push CLSK shares to around $48-$60 if my prediction comes true.
Risk factors
- Falling Bitcoin Prices: Crypto mining stocks are positively correlated with Bitcoin prices, meaning a crash in BTC price would hurt CLSK shares in the short term.
- Lack of capital to fund hashrate growth: CleanSpark ended the third quarter of 2023 with $125 million in cash and may need to set aside some capital in case the price of Bitcoin crashes in the next few months.
- Sell Bitcoin to Fund Growth: CleanSpark sells about 88% of its monthly mined BTC to cover costs, but this amount could increase if the company wants to increase its hash rate faster.
- Increasing short interest: CLSK’s short interest is around 8%, but that number could rise if short sellers bet heavily against the stock. I don’t think this is much of a risk as short sellers have lost a lot of money betting against Bitcoin and crypto stocks in 2023 due to Bitcoin’s 125% year-to-date gains.
My game plan for CLSK Stock
I am long CLSK stock and will continue to buy the stock until the Bitcoin halving in April 2024.
My goal is to accumulate shares and then sell covered calls to pay myself a small “dividend” while I wait for the post-halving bull run to begin in April 2024.
Currently, the daily RSI chart for CLSK is around 62, while the weekly RSI chart is only at 58. Long-term resistance is around $7.50 while support is around $3.40.
CLSK Daily RSI chart (cleanspark.com)
CLSK Weekly RSI chart (cleanspark.com)
CLSK stock could fall over the next few weeks but is likely to continue rising over the next few quarters if crypto bulls continue to hit the buy button.
The crypto bull market will not last forever and usually ends around 500 days after the Bitcoin halving. That means CLSK stock could peak around September 2025.
If you’re looking for a relatively cheap crypto penny stock with a lot of upside potential, then CleanSpark is one of the best Bitcoin mining stocks in my opinion.
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