That brings us to our final miner, Soluna Holdings (SLNH). In this case, I think we’ve saved the best for last, as Soluna has a unique way of going about crypto mining. Soluna is not a crypto miner in the way that the others in this list are, but rather, the company builds “scalable data centers that convert wasted renewable energy into computing power.” This is then used for applications such as crypto mining, machine learning, or artificial intelligence computing. Soluna aims to provide low-cost alternatives to battery storage or transmission lines, taking advantage of generated power that would otherwise be wasted. The company’s slogan – Sell. Every. Megawatt. – sums up the business model pretty well. Soluna harvests power that would otherwise go to waste and utilizes it to generate low-cost revenue in crypto mining.
The January update showed that the company is on pace to hit 1 EH/s by the end of March 2022, and over triple that level by this year’s fourth quarter. In other words, capacity to mine crypto is ramping extremely quickly, and therefore, revenue generation capacity. The 1 EH/s capacity is about two months ahead of schedule, and management remains very bullish.
The company currently has 52 MW energized and its January Bitcoin equivalent mining rate was up 11% month-over-month. On a comparable basis, mined Bitcoin was up 20% month-over-month in January. Targets for the end of this year are 150 MW, and 3 EH/s, both of which are 3X current levels.
Annualized revenue was ~$39 million in January, so on a price-to-sales basis, Soluna is at 2.4X. However, keep in mind that January’s revenue rate is likely to be a small fraction of December 2022 revenue, as we should see capacity ramp throughout the year. So, if we triple January’s annualized revenue rate and estimate ~$100 million in revenue, Soluna may be trading for 1X sales or just over it. On this basis, I find Soluna to be an extremely attractive Bitcoin alternative. Keep in mind we’re working off of forecasts from management, so there’s a lot of execution risk between here and there. But it appears to me that if Soluna gets even in the ballpark, the stock is very cheap.
I also like the unique model Soluna employs, because it also has flexibility to apply its computing power to a variety of applications. It has a green element to it because the company is harvesting power the generators would otherwise be wasting, and costs are low because of that. It all comes together in a differentiated package that marks Soluna aside from the others.
Now, let’s take a look at the chart.
StockCharts
Unlike the others in this list, Soluna has a very strong A/D line that is making new highs, while the stock is down almost half from its high. That speaks volumes (literally) about how investors feel about this stock. People are buying dips, and that’s an extremely bullish trait for any financial asset. In the face of the rest of the miners all posting weak A/D lines, I think Wall Street has picked this stock as the leader of the group. When/if bullish Bitcoin price action returns, the leaders are allocated the most money. That’s where you want to be.
Momentum put in a positive divergence in the past several weeks, another bullish sign. That makes it much more likely that we’ve already seen the low on Soluna, which drastically reduces the risk one needs to take to own it.
Its correlation to Bitcoin is lower than most of the others in this list, but it’s still certainly positive. If we stretch the timeframe from 20 days to 100, Soluna’s correlation to Bitcoin is 0.77. That means they’re reasonably well correlated, which then leaves the last piece of the puzzle being its performance against the coin itself.
Soluna has outperformed Bitcoin, if modestly, for the past few months. I think this has to do with the cheap valuation driving buyers (evidenced by the rising A/D line), and for all of these reasons, I see Soluna as having more upside potential from here than Bitcoin itself.
One final point that I think supports the bulls is that nearly 30% of Soluna’s float is owned by the CEO’s investment firm, Brookstone Partners. Those are going to be very sticky shares that don’t trade hands, so if we do start getting a rally, it can be quick. It also means management is extremely interested in a good outcome for shareholders, and that’s never a bad thing to have the people steering the ship with the same goals as you.
Conclusion: Which Bitcoin mining stock is a buy?
If we see Bitcoin rally later this year – as I believe we will – Soluna is still highly correlated and will almost certainly advance on that prospect. In addition, Soluna has the extra leverage of rapidly increasing capacity, adding another lever that the coin itself won’t have.
The miners in general aren’t necessarily in that good of a shape in a lot of cases. There are widely varying valuations, very poor looking charts, and increasing competition. However, Soluna is different; I see it as very cheaply valued, and with huge potential upside.
Be in no doubt that owning any crypto-related stock is a risky proposition. The rewards are significant, and so are the risks. You don’t have to take my word for it; you can look at any of the charts in this article for sufficient evidence of that. However, given that we’re so far down from the highs, the massive excess that was present a few months ago is gone, and we can buy the best of the best at what I see as a very attractive valuation.
Keep your positions sized prudently and keep stop losses in place if that’s your thing. The point is, manage your risk on these carefully so you don’t end up holding the bag if the sector goes south. I honestly don’t think any of the others look that great at the moment, apart from Soluna, which I like very much.
Linked to Article Josh Arnold at SEEKING ALPHA Feb 22, 2022
LOTM Research & Consulting Service
* An account related to LOTM holds a position in this security.
Neither LOTM nor Tom Linzmeier is a Registered Investment Advisor.
Please refer to our web site for full disclosure at www.LivingOffTheMarket.com ZTA Capital Group, Inc.
To Unsubscribe please select “return” and type Unsubscribe in the subject line.
