Bullish momentum continues to permeate the cryptocurrency sector today, with CleanSpark (CLSK 23.86%) among the leading crypto-related stocks to see major moves. As of 2:45 p.m. ET, the Bitcoin (BTC 5.28%) miner has seen its share price surge 26.1% from yesterday’s close, marking the continuation of a volatile start to the year, which has seen CleanSpark stock nearly double in less than two months.
Of course, because CleanSpark is a top Bitcoin miner, the price of Bitcoin ultimately dictates a great deal of its price action. Today, Bitcoin saw its token price jump above the $54,000 level for the first time in two years, a move that’s generated a great deal of excitement in this overall sector. The 24-hour move for Bitcoin currently stands at around 5.4% at 2:45 p.m. ET, so let’s dive into why investors are pricing in nearly five times as much upside.
Why is CleanSpark outperforming to such a degree today?
Bitcoin mining stocks often have higher-volatility moves to the upside or downside during periods of intense volatility in Bitcoin prices. One of the easiest-to-understand realities in the mining sector is that revenue for these companies is denominated in Bitcoin, with costs denominated in dollars. So as the exchange rate improves (Bitcoin becomes more valuable), the income statement and the balance sheet for these firms both improve also. That’s the sort of double whammy that increases their relative valuation over short periods.
So with Bitcoin continuing to see upward momentum today, it appears the market is pricing in some continuation of this trend, allowing for a bigger short-term move in CleanSpark’s stock price. Investors may also be considering longer-term catalysts, such as the upcoming Bitcoin halving.
Bitcoin’s mining rewards will halve sometime in April, meaning miners like CleanSpark will get their revenues immediately cut in half. However, with increased mining difficulty comes lower supply, and theoretically higher prices (which we’re seeing). So as long as Bitcoin’s price increases overshadow the cut in rewards, companies like CleanSpark should make out OK.
This is even more true given that CleanSpark has been aggressively investing in mining capacity ahead of the halving. The company recently announced plans to buy four Bitcoin mining facilities, a move that’s drawn serious interest in the company.
Is this Bitcoin mining stock a better way to play the recent crypto surge?
I’m of the view that higher-volatility proxies for underlying commodities generally aren’t worth the risk. If I want to gain exposure to gold or copper, I think buying the commodity itself, or futures, is a better option in most cases. That’s because miners tend to operate with significant leverage, and there’s always the risk of blowups during periods of sustained low prices in the sector.
However, during rallies like the one we’re seeing right now in the crypto space, these are the sorts of short-term rewards provided to investors willing to accept this risk.
Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
