It may be that finally the crypto space is in the clear. If so, then Lesson 4 of The Art of The Bubble matters: the least become first.

When market conditions turn, those companies that were struggling suddenly aren’t struggling. Short positions are squeezed and the market has to reprice the stock or coin.

Well, Bitcoin may return to its positive trend. If so, then it might make sense to look at the most depressed sector of the crypto space: BTC miners.

Because the cost of staying competitive is so high, BTC miners often struggle in the best of times. High debt to equity ratios are the norm and they often have a trailing negative EPS. This makes them prime candidates for a turn around bounce.

Among the BTC miners, one of the most interesting firms is Core Scientific (CORZ). They not only mine, but provide high performance computing for AI training. This explain, in part, why their stock price has held up well year to date (YTD).

They are also emerging after bankruptcy, so they have an ok balance sheet – giving you a bit of protection in the event that something unexpected happens.

Now for the problem – as the global exahash rate (the amount of compute power devoted to mining) has increased, CORZ has had trouble keeping pace (purple line vs gray bars below)

Their AI servicing, however, has relatively made up some of the gap. There is also a buy offer possibility for the AI servicing that might give CORZ the capital it needs to be more competitive in the BTC mining space.

Now we have some back-of-the envelope calculations we can make:

• Assume AI Unit makes $290m in revenue annually

• Assume they can continue to mine 400 BTC monthly

• Assume BTC averages $100k over the next 12 months (reaching say $160k for an ATH).

• Expected revenue for the next 12 months would thus be: $770m

• That’s $3.51 of revenue per share.

• Current price per share is 2.77x that – which is cheap. 

Quite a bit in this analysis depends on BTC’s price and, frankly, you can increase your sophistication of analysis to get more precision, but not more accuracy.

At this state, there are too many unknowns to say more than: CORZ is likely cheap on a fundamental basis (price to sales) if Bitcoin experiences a bull run in the next 12 months.

A look at the price history suggests that it could trade, in positive periods, at roughly 1.5x to 2.5x BTC’s price.

The stock, for sure, responds dramatically to BTC’s price rise and given its AI exposure the firm is better positioned than alternatives in the mining space to weather BTC price dips.

As a result, we’re looking to trade this as part of our Bubble Portfolio.

Happy Trading!

                                                                               - Sebastian Purcell, PhD