Bitcoin and other cryptocurrencies are extremely volatile and speculative and the last fews months have been evidence of this. Some see unlimited upside while other see no underlying value. But no matter the case, money (and a lot of it) is being made right now. Many analysts are seeing strong potential in companies that are involved in blockchain technology or cryptocurrency mining and a new opportunity for investment.
There are certainly elements of this new trend that are certainly speculative bubbles and other elements that are very real with tremendous profit potential. Remember in the late 1990s when investors had to decide whether to invest in Myspace or Facebook (FB) or Netscape or Microsft’s (MSFT) Internet Explorer. Those are the kind of dilemmas we now face as the new cryptocurrency universe unfolds.
After the bitcoin boom, prices of cryptocurrencies have settled out and this could pose big hurdles for companies who starting mining cryptocurrenices when digital currency prices were on the rise. Large overhead from power costs and cooling costs alone make some mining operations nearly obsolete at this stage.
New Climate, New Opportunities
Take a look at MGT Capital (MGTI) for instance. They began mining on a larger scale in May of 2017. Shares promptly rallied from roughly $0.60 to as high as $8.14 as bitcoin prices increased. Similarly with Digital Power Corp (DPW), its initial jump into the crypto space saw shares rocket from roughly $0.60 in late-November to high of nearly $6 a month later. Shares of Riot Blockchain (RIOT) were valued at $4.60 before the stock ran to over $45 per share, which followed a string of announcements regarding a shift in focus to blockchain technology and cryptocurrency mining operations.
But these companies were building their infrastructure during a time when bitcoin prices were in an extreme bull market. How many of them had prepared for the dramatic consolidation that cryptocurrencies have seen over the last few months? Everything that goes along with maintaining mining operations needs adjustment when prices fluctuate but when prices fall, where does that leave bitcoin miners who can still produce coins?
Atlas Cloud Enterprises (ATLEF) for example, has designed a scalable infrastructure that has already addressed several key concerns:
1) Cost for power and;
2) Cost for square footage
Atlas Cloud is positioned to become one of the premier cryptocurrency mining companies in North America. Proximal to the Grand Coulee Dam, the largest power station in the United States, Atlas accesses electricity at approximately $0.03/kWh. This is some of the world’s cheapest power. Electricity costs are one of the key profitability differentiators and Atlas is positioned to potentially become one of the lowest costs and thus add to the profitability factor for its mining operations in North America.
Furthermore, by owning its own facility, Atlas has the flexibility and stability to completely control its operations and maximize returns of mined cryptocurrencies by holding these mined assets in inventory. This is in contrast to paying rent for facilities and/or actual mining rigs. Atlas Cloud’s energy consumption dedicated to digital currency mining for this individual location is 3.0 megawatts supplied by the Grant County Public Utility Department.
In addition, if and when cryptocurrency prices recover, Atlas will have the ability to upgrade to 5.0 MW. The benefit to Atlas is that their mining operations have begun during a period where bitcoin prices are lower, not having built its business on a $15,000+ bitcoin value.
After acquiring 1,000 bitcoin miners earlier this year, the combined mining capability of Atlas Cloud’s 1,000-machine installation provides 13.5 petahashes per second (PH/s) with a resultant mining capacity of 1.52 BTC/per day, based on current parameters. Assuming the company is mining 1.52 BTC/day with an average price of bitcoin at $8,000 per coin, that would equate to over $360,000 per month just from current operations (and not scaling up or reinvesting into the business).
If you aren’t convinced, you should know that the market capitalization of cryptocurrencies is nearing $300,000,000,000. Just to put that into perspective, it’s larger than Walt Disney Company, Netflix, and the Black & Decker, combined.
The fact of the matter is this, hundreds of billions of dollars are pouring into this market with investors getting immediate and direct exposure to things like bitcoin mining by putting their money into a few, key small cap companies right now. Despite the recent fall in cryptocurrency prices, cryptocurrency mining still appears lucrative, as some estimates show that the miners would be cash-flow positive even if the price of Bitcoin drops as low as US$2,400.
The Land Of Milk And Honey?
But timing is vitally important right now as some of the locales with cheap power are shutting off the flow to new entrants. The public utility from a county in Washington state long known as a destination for power-hungry bitcoin miners has said it will stop reviewing applications for new operations.
The current load from the operations already set up are beginning to impact the county's overall electric grid capacity, said General Manager Steve Wright, according to the release. This is resulting in public health and safety concerns, as well as possible threats to the district's planned growth.
So identifying companies that will already have operations intact will also be a key to capitalizing on the next move in bitcoin. The simple fact is that newer bitcoin miners or even older miners looking for cheaper energy, will be shut out from the “land of milk and honey” that are places like Washington State. Additionally, the city of Plattsburgh in upstate New York implemented a similar measure. Plattsburgh officials also cited the power demands commercial mining operations produce, noting that it had caused residents' electricity bills to spike.
Conclusion
Though people like Janet Yellen have said that Bitcoin is not a stable store of value or constitute legal tender, for the US at least, it would appear that other economies of scale are saying otherwise by their actions (Japan most recently). The central bank for central banks has even stated that cryptocurrencies can’t be ignored any longer especially at the rate of growth that they’re seeing this year.
“Bitcoin has gone from being an obscure curiosity to a household name,” the Bank of International Settlements said.
Companies like Square Inc. (SQ) and even figureheads like PayPal (PYPL) co-founder Max Levchin are openly beginning to support further progress with digital currency ecosystems. Right now there is literally a race going on for companies to get businesses in line with the current climate and to be able to scale up at a time when crypotcurrencies move higher.
It’s important to note that it will most likely be those companies who’ve built an infrastructure around low power costs and scalable operations that flourish; not the companies who are simply setting up shop, renting warehouse space, and flipping on the power switch hoping to mine some bitcoin.
In the end, companies like Atlas Cloud could offer more near term opportunity as they have addressed several key hurdles from the start. Owning their own facilities and paying some of the lowest power costs in the country at a time when new entrants are getting shut out of locations with cheap power does pose a big advantage.
Now that bitcoin prices have come back to earth, there will be new opportunity being presented as the next generation and hopefully a more savvy generation of bitcoin mining companies comes to the market. Investors should pay close attention to the companies that will be able to adjust with the current and future conditions.
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