Bitcoin miner’s green patina is fool’s gold

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An employee works on bitcoin mining computers at the Bitminer factory in Florence, Italy on April 9, 2018. Photo taken on April 9, 2018. REUTERS / Alessandro Bianchi – RC1331747750

MELBOURNE, Nov. 17 (Reuters Breakingviews) – The California Gold Rush has gone through its hydroelectric phase, and cryptocurrency could enter it as well. Bitcoin miner Iris Energy (IREN.O) relies primarily on renewable energies, particularly water, for its electricity suction operations. This somewhat new twist might help underpin his initial assessment of the public offering, but the climate-saving hype seems overdone and cannot mitigate other serious risk factors.

With each bitcoin valued near an all-time high of around $ 60,000, it’s no surprise that investors are keen to support digital prospectors. Part of the backlash, however, is related to the astonishing levels of power required – currently around 119 terawatt hours per year, according to Cambridge University estimates, or more than what the Netherlands uses. Tesla (TSLA.O) quickly reversed a decision earlier this year to accept bitcoin as a payment method over environmental concerns. Swedish authorities last week urged the European Union to ban cryptocurrency mining to help meet energy transition goals.

Against this background, the green shade of three-year-old Iris proved to be timely. He touts a strategy of locating operations in oversupplied clean energy markets where the Australian company is also theoretically positioned to help support power grids when needed. It’s better than depending on fossil fuels, but it’s still a massive energy consumption for an activity with questionable economic or social benefits. The business model can also be replicated.

There is no lack of other concerns. Founders Daniel and William Roberts took over management of Iris in September after parting with a chief executive who lasted less than five months. The brothers will also retain control with a special class of shares, relegating common shareholders to second class status. Raising capital helps, but also lurks amid many risk factors familiar to cryptocurrency enthusiasts is the mother of all: “There is substantial doubt about our ability to continue as a business.

This may partly explain a valuation haircut using an original measure of anticipated computing power known as contracted hash capacity. Having valued stocks on Tuesday above the target range, the company will start trading at just over 100 times that number, a relatively modest multiple. The biggest rival Marathon Digital (MARA.O), with a similar mining speed target, recovers over 400 times. Using the slightly more conventional income multiple, however, Iris commands a noticeable bounty from many peers – a further sign that the green patina is fool’s gold.

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NEWS CONTEXT

– Bitcoin miner Iris Energy said on November 16 that it raised around $ 232 million in an initial public offering that values ​​the company at around $ 1.6 billion after valuing its shares at $ 28 apiece, above a previously targeted range of $ 25 to $ 27. The shares are expected to start trading on November 17 on the Nasdaq.

– JPMorgan, Canaccord Genuity and Citigroup are the main bookkeepers.

Editing by Antony Currie and Katrina Hamlin

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