CleanSpark: Sparking An Upgrade From Sell To Hold

Summary CleanSpark has increased its hashrate to 45.6 EH/s with an eventual goal of 60 EH/s. It is accomplishing this via its efficient mining operations and continuously adding power capacity. Profitability concerns despite revenue growth as Q2 2025 revenue rose 62.5% YoY to $181.7 million, but the company reported a net loss of $138.8 million. CleanSpark is now funding its operation by selling a portion of its production. This marks a shift from its earlier strategy and is less equity dilutive. CleanSpark has a strong balance sheet and could be a leverage play on Bitcoin, but high mining costs and declining rewards make the business model risky. Upgrading to “Hold” but. I’ve written about CleanSpark ( CLSK ) in the past, as I had turned bearish on the company last year. This article serves as an update to my previous one . There have been a few key developments in the company as it has grown and expanded its Bitcoin operations. The Goal to Reach 60 EH/s In a recent update for the month of May 2025, CleanSpark reported that its hashrate has increased by 7.5% to 45.6 EH/s compared to the previous month. This puts the company on track to reach 50 EH/s by June, being the only publicly listed miner to reach this threshold. As a miner, the company is operating at quite an efficient scale with a deployed fleet of over 230,000 miners and an average efficiency of 16.71 J/Th. Part of the company’s selling point to investors is that it is a pure-play, vertically integrated Bitcoin miner with an infrastructure-first growth strategy. What this means is that CleanSpark has made it a priority to own its infrastructure and not rely on third parties. This includes the power infrastructure that allows its miners to operate at high uptime and efficiency . As mentioned in the company’s investor presentation , CleanSpark is an energy professional who saw the future in Bitcoin and not Bitcoin miners who figured out power. CleanSpark Investor Relations In connection with that stated strategy, the company has also secured an additional 72 megawatts of contracted power, bringing the entire total to 987 megawatts. According to CEO Zac Bradford, the company’s vertically integrated model gives it an efficiency edge over peers. As stated in the press release; This milestone reflects the strength of our vertically integrated model, allowing us to scale efficiently, retain operational control, and protect margins. Importantly, reaching 50 EH/s is not our endpoint. We intend to continue building, and with much infrastructure already in place, we are well-positioned to achieve over 60 EH/s. We believe this execution-focused strategy will continue to drive long-term value for shareholders. Year-to-date, CleanSpark has produced a total of 3,283 BTC, of which 694 BTC were mined in May. For the month, it sold 293.5 BTC at an average price of $102,254. This represents 42% of all BTC mined during the month, with the rest being added into the company’s treasury. It is part of CleanSpark’s strategy to build up a massive Bitcoin chest and eventually book that capital gain should the price of BTC continue to rise. Currently, the company is holding 12,502 BTC, which has doubled from the same time last year. At the current price of $109,718, CleanSpark’s Bitcoin holdings are worth $1.37 billion. While it is good that the company is increasing its efficiency in terms of its hashrate, profitability remains a concern. Because of the last halving event and the way Bitcoin rewards decrease over time, this may not necessarily result in profit for CleanSpark as I will discuss further below. Quarter Results Looking at the company’s Q2 2025 quarter results shows an improvement compared to the previous year. CleanSpark reported $181.7 million this quarter, which was a large improvement of 62.5% compared to the $111.8 million reported at the same time last year. Unfortunately, this did not fall to the bottom line, as the results were worse than they were a year ago. Net loss for the quarter was $-138.8 million. This is in contrast to the Net Income of $126.7 million reported in Q2 2024. Even on an adjusted EBITDA basis, the company still showed worse performance this year compared to last, with a negative Adjusted EBITDA of $57.8 million compared to $181.8 million the same time last year. I looked through the company’s 10-Q to try to find the source of the poor quarter-over-quarter income comparables. What really stood out the most was the sharp increase in cost of revenues, which was $85.4 million for the quarter. This was more than double the $51.1 million reported at the same time last year. Management attributed these higher costs to the energy costs due to the increase in the volume of miners. This aligns with the disclosures stating that on a per kWh basis, costs moved from $0.060 and $0.043 or 39.5%, in its owned facilities where it mined the majority of its Bitcoin. The cost of mining Bitcoin has increased Management has brought up the issue of costs in the earnings call , stating its marginal cost per coin. However, as I detailed last year in my previous article, this does not include the other mining costs, most notably the depreciation of the miners. Mining rigs typically don’t last for more than 3 years; therefore, it cannot be viewed as a long-term asset in the traditional way. Taking this into account, CleanSpark’s mining cost per Bitcoin, including non-cash depreciation, is $77,783. Compared to the mining cost and depreciation of $27,007 this is close to 3x as much cost to mine and was larger than I feared. In other words, on a Gross Profit basis, Bitcoin would need to trade around $78,000 just for the company to break even based on this quarter’s results. As mentioned on the earnings call; Notably, our marginal cost per coin was approximately $42,600, a 26% increase over the first quarter. The increase in our marginal cost per coin can be attributed both to an increase in mining difficulty as well as rising power prices. Our average cost per kilowatt-hour increased during the quarter to $0.06. And as Zach mentioned, this was a result of intentionally managing to a margin rather than to a specific cost per kilowatt-hour. CleanSpark Investor Relations This circles back to a fundamental business problem with Bitcoin mining in general, that over time, you get less Bitcoin mined even as computational capacity increases. This is even worse when taking into account the every-four-year halving event, which happened last year. As shown here clearly in the quarter-over-quarter results of CleanSpark, management has greatly expanded its operations, as evidenced by its higher costs. However, since you get less Bitcoin mined over time for the same amount of power, revenue goes up more slowly than the increase in costs. CleanSpark Investor Relations CleanSpark Shifts Its Capital Strategy In a recent press release , CleanSpark has announced that it is “expanding” its capital strategy by increasing its credit facility with Coinbase ( COIN ) through its Bitcoin-collateralized lending program. In conjunction with this, the company has an institutional-grade Bitcoin treasury desk. Apart from the usual functions of managing the custodial process of its Bitcoin reserves, running a treasury desk implies certain optimization tasks. Thinking of how a normal treasury department works, these tasks and strategies include liquidity management, borrowing and lending, and portfolio/risk management. Therefore, it makes sense that it can borrow against its Bitcoin reserves to service any liquidity it may need via this credit line of $200 million. According to management, CleanSpark has now reached a sufficient scale to self-fund operations and build upon its Bitcoin holdings via the cash flow it has generated from its operations. In other words, rather than simply “holding” all the Bitcoin it has mined, a portion of the monthly production will be sold to support operations. Therefore, its treasury desk has the responsibility to strategically manage this process by deciding if it’s best to sell or borrow and hold this Bitcoin. Moving back to using production to fund operations marks a shift in the company’s philosophy. In the past few years, starting mid-2023, CleanSpark has relied on equity dilution to fund its growth. The company was on a “100% hold strategy” where it would keep its Bitcoin mined and rely on fundraising for its operational expenses. In June 2023, the company had 114.8 million diluted shares outstanding. This had ballooned by 144% to 280.9 million diluted shares outstanding. Moving away from dilutive capital is a positive sign for company shareholders. Data by YCharts Using production for operations has signaled that CleanSpark has both reached the economic scale necessary to be self-sufficient and has amassed a significant amount of Bitcoin that it can utilize via its new treasury department. Currently, the company has a decent balance sheet as well, with Total Assets of $2.65 billion, of which roughly $100 million is in cash and the aforementioned $1.37 billion in Bitcoin. This is sufficient to cover its total liabilities of $766 million, of which $641.7 million is in long-term debt. The strength of CleanSpark’s balance sheet puts it in a position where it has a lot of wiggle room with its treasury department on how to properly utilize its capital. Since “mining” itself isn’t insanely profitable, a lot of the value of CleanSpark actually comes from its reserved Bitcoin portfolio. Being able to manage this portfolio to take advantage of future Bitcoin capital gains while making sure the company has enough liquidity to run will be crucial. Conclusion It is commendable that CleanSpark has stopped relying on dilutive capital raises and is now deciding to fund the business with a portion of its Bitcoin production. The company’s strong balance sheet and new treasury department will give it the nimbleness to manage and utilize its Bitcoin reserves and production. However, I still have concerns with the company and the overall business model of Bitcoin miners in general. Despite CleanSpark being an expert in energy management and efficiency, the overall production costs of Bitcoin remain quite high. I have always believed that the better play for crypto exposure would be to simply buy Bitcoin itself through one of the many now available ETFs. As seen in the chart below, CleanSpark has underperformed the iShares Bitcoin Trust ETF. Data by YCharts There are certain key risks to my bearish thesis. The main one is that the company continues to become more efficient, such that it is able to further lower its energy costs. If Bitcoin prices rally sharply, then CleanSpark could end up being a decent leverage play on Bitcoin. The company currently has a “B+” valuation grade on Seeking Alpha’s quant metric due to its low forward P/E of 10.4x and low forward EV/ EBITDA of 7.45x. This is a pretty decent valuation and reflects the expectations of improved profitability in the future. Seeking Alpha However, the unknown factor that is out of the company’s hands is the hashrate, determining how many rewards miners earn. CleanSpark may be super-efficient, but if the rewards earned from mining keep decreasing at such a rate, it cancels Bitcoin price increases, then a Bitcoin ETF may still be the better play. I am upgrading my company rating, though, from a “Sell” to a “Hold.”

Source: Seeking Alpha