It’s a good time to be in the crypto mining business in the U.S. Three weeks ago, China banned all cryptocurrency transactions and mining operations, making the U.S. the top place in the world for Bitcoin and Ethereum mining. After long-awaited approval by securities regulators, the country’s first Bitcoin futures ETF also launched on Tuesday.
On top of that, rising inflation is heightening interest in alternative investments. Unsurprisingly, Bitcoin has jumped to an all-time high of more than $66,000.
Now today another boat has been lifted by that tide: the initial public offering of eco-friendly Bitcoin miner Stronghold Digital Mining. The Pennsylvania-based company debuted on the Nasdaq on Wednesday at $19 per share, and the price swiftly jumped to $30. The company, now trading under the ticker symbol SDIG, raised $127 million in the offering, the proceeds of which it plans to use for acquiring new power generation assets and miners.
"If #Bitcoin keeps running through the week, the $SDIG IPO could be a very hot debut play," a user called IPOWarrior tweeted ahead of the offering.
"Low float of just 5.8M shares, and the 'eco-friendly' angle make it a potent combo of buzz and demand imbalance that often provides a lucrative upside opportunity for an IPO scalp trade."
There are lots of reasons to like Stronghold Digital Mining. Importantly, it helps solve a problem that has lately dogged crypto, and particularly Bitcoin — that it uses too much energy and is bad for the environment. Some observers, however, are complaining that it is over-valued. We decided it was worth taking a closer look at the business. Here are four key points to focus on:
1. Its bet on lower-cost energy makes it stand out from competitors
Stronghold Digital Mining uses the energy it derives from coal refuse at a lower-cost to fuel its Bitcoin mining operations. On top of this, it sells the excess energy it produces. The company also manages its Bitcoin assets such that it may only convert enough Bitcoin to keep itself afloat while it bets on higher conversion rates at a future date.
The company is riding regulatory tailwinds with tax credits for reclaiming coal waste for energy production. It’s able to do that because the company is transforming environmentally-detrimental coal refuse to power its Bitcoin mining operations.
However, there is no indication that the company uses proprietary technology to repurpose coal refuse, nor is its business model particularly reliant on scale-dependent network effects. This presumably makes the cryptocurrency-mining company vulnerable to new entrants in the space.
2. The IPO will multiply its capacity manifold
At this time, Stronghold Digital Mining runs one plant and will soon put another one that it has recently purchased to use. Besides, it owns 3,000 rigs (the computer machines that mine Bitcoin by performing complex and energy-intensive computations). Post-IPO, the company aims to acquire a third plant in Pennsylvania, and add 26,000 rigs to its inventory. Eventually, it aims to operate 55,000 of them by 2022.
3. The founding team has the right experience for the task
The two co-founders, Gregory Beard and William Spence, seem to bring a relevant skillset to the board operations. Beard has had a career in financial portfolio management with a focus on natural resources, namely at Apollo Global Management. Spence on the other hand comes from a mining engineering background specifically in turning coal refuse into electricity since 1993.
4. The company is environmentally-friendly — but not exactly carbon-neutral
Coal refuse has been piling up in Pennsylvania since the Industrial Revolution. The waste from coal plants has had devastating environmental effects. Toxic particulate matter from coal refuse infiltrates the air, and affects nearby water sources, killing local species and disrupting ecosystems. The energy source is also highly vulnerable to combustion and ignites wildfires that disproportionately affect poor communities. Moreover, it creates unsightly landscapes where plant life cannot grow.
Stronghold Digital Mining takes advantage of tax credits afforded to companies that reclaim the waste and restore the land. Accordingly, its operations regenerate local ecosystems and have a positive environmental and social impact. However, it is worth noting that the net carbon footprint for these activities is extremely high being that the company still relies on burning coal. While this model is better than extracting fossil fuels for electricity, it is not exactly using renewables, and has led critics to qualify it as a mere transfer of pollution from one source to another.