Rally On, Traders!
Blockchain mining. Maybe you associate it with nerds wiring old game consoles together to grind out little flecks of value . . . but done right, it’s actually a huge wealth creator, fueling massive venture capital moves and even bigger IPOs.
Do the math. Just keeping the first-generation blockchain cranking is already draining enough power from the global grid to light a country.
Reading between the lines, about 1 megawatt of juice can create one coin an hour, 24/7/365. That’s 60,000 coins per year and at current prices the run rate on that computing power is $35 million a MONTH.
And that’s how the Chinese “mining” companies can support BILLION-dollar public offering plans and at least for the giants score $400 million in private funding
in the here and now.
We don’t live in Hong Kong. We don’t have an infinite venture capital checkbook. But anyone with $0.25 to spare can still play the theme via a little U.S. stock, Mining Power Group Inc. (RCGR).
RCGR may not be a Chinese giant, but the business model has a few frills that our friends in Hong Kong would be glad to emulate. And since they’ve only been a player in this industry for a matter of WEEKS, my feeling is that the innovation here ramps a lot higher than the stock currently suggests:
Yeah, it’s nice and wild as Wall Street figures out what RCGR is all about. The main trading band that concerns us is 60% wide, with every point on the spread between $0.19 and $0.31 in play across the cycle.
Play it right, there’s plenty of swing here. But where RCGR really shines is on the big moves that push below the floor and then soar through the ceiling. I think that porous ceiling demonstrates the real long-term play here.
After all, it’s been barely a month since RCGR bought a New York State data center that specializes in blockchain mining. It’s a rare asset for someone with a strategic focus: most data centers are basically just generic “server hotels,” with computer after computer lined up.
This one is loaded with specialized high-performance hardware. And it’s literally a hotel. The miners themselves own the servers. It’s up to them to keep them updated and spinning fast. RCGR gives them a storage rack, hooks up the power and the air conditioning, and then the cash starts flowing.
So far, so good. They’ve already negotiated a $6 million two-year contract with a core customer, so this is already a revenue-positive play. That’s $270,000 a MONTH in exchange for roughly 5 megawatts of power.
The customer is happy. At a glance, they can spin up 5 coins an hour on those machines, so even if the granddaddy of virtual currencies drops a harrowing (and unlikely) 95% in value that rent is still affordable. Anything better, and they’ll have money to burn even after RCGR gets paid.
And RCGR isn’t taking the risk. They don’t need to buy the machines. They aren’t riding the currency rollercoaster every day. They just provide the space and the juice. And their share of the proceeds is locked in.
That’s exciting. RCGR management naturally thinks it’s only the first of many similar arrangements to come. In fact there’s enough power at the site to support another 295 megawatts of mining . . . 59 times what that first customer needs!
Demand is likely. After all, coins are only the opening act of what the big boys at Goldman Sachs promise will be a full-fledged BLOCKCHAIN REVOLUTION.
Blockchain is just the computing system that grinds out virtual money or other advanced virtual products like “smart contracts,” gemstone and photo validation, uncrackable copy protection and on and on.
It still requires the same high-end machines, whether the result is a coin or some sophisticated computer outcome. They’re both worth money. RCGR knows those computers need a place to live.
They’ve invested in 30 ACRES of land to make sure they have room to expand. Thanks the the latest and greatest network engineering, they’re operating as efficiently as it gets.
Figure one of the bigger Chinese miners has 75% of the global market share, as calculated by the number of high-speed chips it buys. It’s selling itself in Hong Kong at a starting valuation of $12 billion.
Maybe the global industry burns 7 gigawatts (7000 megawatts) of power, so that giant accounts for 75% of that or 5000 megawatts. Value that at $12 billion. With 300 megawatts, little RCGR has the capacity to make about 5% of that market cap happy.
But wait! This is barely a $13 million stock right now! That’s a LONG way from what its implied market wattage should be, assuming of course that it’s no less efficient than the Chinese heavyweights.
(Actually it probably deserves a little premium for being newer, sleeker and less directly exposed to shifting exchange rates, but you have to judge that for yourself.)
The guys who just poured $400 million for a slice of that company could grab every share of RCGR and have enough cash left over to do it another 29 times. Is that fair? Does it make sense?
All I know is that the market routinely corrects its mistakes. It might take a little time for the comps to catch up here, but with that 60% rollercoaster already moving fast, I wouldn’t want to miss the fun.
Happy, Happy, Happy Trading!
