As I write this, major cryptocurrencies like Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD) have shed significant value from their recent bounce higher. Still, one can make the general argument that overall, digital assets have helped shift the narrative of decentralized financial platforms. As a result, crypto miners like SOS Ltd (NYSE:SOS) are appealing. With SOS stock, you gain indirect exposure to virtual currencies but with the protection of regulated equities.
Plus, when the blockchain sector is rocking and rolling, the mining industry offers incredible rewards for speculators. For instance, at the beginning of this year, SOS stock closed at $1.44. On Feb. 17, shares finished the day at $12.80, a nearly 9X upside. That’s remarkable in and of itself, let alone the fact that investors could pocket this healthy gain in a little over one-and-half months.
On the other hand, while Bitcoin was a high flyer, it only gained a little over 2X at its best performance within this year. Even when it dipped to a little over $10,000 in September 2020, you’re talking about a little over a 6X gain to its all-time high. Therefore, from a speculator’s perspective, publicly traded mining investments like SOS stock have their place.
But nowadays, advocates of blockchain miners are discussing a new angle beyond the gambling-on-sentiment argument: the usage of renewable energy to support mining operations. Indeed, that’s partially what has our own Louis Navellier excited about SOS stock. As he points out, SOS claims to use “more than 90% renewable energy for its mining operations.”
Immediately upon hearing this, it sounded too good to be true. Use renewable energy like wind and solar to run crypto mining operations? It’s like Mother Nature giving you a monthly stimulus check — with a lot of zeros at the end.
Why Healthy Skepticism Should Be the Norm for SOS Stock
But before you rush out to load up on SOS stock, you should really think this through. Yes, I understand the temptation involved. SOS is making bold claims and as an entity listed on the New York Stock Exchange, management cannot just deliberately mislead people with false information.
As well, Louis Navellier has a long track record of guiding everyday investors to lifechanging profits. So, simply on his reputation alone, SOS stock at least enjoys a measure of credibility. I get it. I still think you should be skeptical, not because I said so but because we’re talking about your money.
Without getting bogged down with the numbers, let’s just recognize why fossil fuels have long dominated the broader energy discussion. As the Brookings Institution noted, fossil fuels lever tremendous energy density. In other words, renewable energy sources are viable but the tradeoff is that they require extensive investments in real estate.
And as the saying popularly attributed to Mark Twain goes, buy land — they’re not making it anymore.
Thus, for SOS — or any other green crypto miner — to be successful, it’s got to buy extensive property. Given that mining operations are incredibly power hungry and that renewable energy sources are dramatically less dense than non-renewable sources, I think we all have a right to be suspicious of green mining claims.
Don’t think I’m the only one being the negative Nancy. As reported by Vox‘s Umair Irfan, Alex de Vries, a blockchain specialist at PwC’s Experience Center, “explained that even the renewables being used for Bitcoin mining have their own consequences. Hydropower in particular has huge regional environmental effects and sometimes has to be backed up by fossil fuels.”
Also, Irfan writes that “another emerging concern around Bitcoin is the electronic waste. The ASIC mining devices quickly go obsolete, often in just under two years, and they can’t really be repurposed for anything other than mining.”
Then Comes the Economics
In Robert Zemeckis’ Back to the Future Part III, Doc Brown chides Marty McFly that he isn’t thinking fourth dimensionally. I think that might be what’s going on with these claims about green miners. Likely, they’re green on a narrow framework. But expand this context and these miners might not be so green after all.
But let’s say that SOS and others are proven correct — their miners are mostly green-energy sourced and thus, impose a minimal impact on the environment. Would that make SOS stock a buy?
Maybe but not necessarily. You see, if such efficiency became the norm, then simple economics would come to ruin the day. That is, whenever innovation makes a product or service cheaper, the price invariably comes down. It’s just simple supply and demand.
Perhaps the greatest irony here is that crypto miners’ much-touted efficiency and cleanliness is exactly what could cripple the blockchain markets. Think about it: if it’s easy to extract Bitcoin from the algorithm, then what is BTC worth?
I don’t know, but it’s probably not going to be worth $60,000 a pop if anybody with a few solar panels can mine it. Therefore, I would be very careful with SOS stock. Sure, it might have some upside, but I would not depend on the green thesis alone.
On the date of publication, Josh Enomoto held a LONG position in BTC and ETH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.