Once the fuel that powered the American Industrial Revolution, coal facilitated the most conspicuous applications in iron manufacturing, steam engines and railroads, according to Yale University. Through the burning of the dark and sooty rock, engineers could convert the commodity into usable energy, delivering personal mobility to the masses for the first time. Given the extraordinary paradigm shift that the coal industry catalyzed, society gave little thought to its environmental impact.
Even to this day, the topic is a tricky one. For instance, Pennsylvania has roots deeply tied to coal production, with the sector still creating tens of thousands of jobs. Unfortunately, the legacy of mining in the region has also contributed to a wasteland filled to the brim with coal refuse piles — waste products from what many consider an anachronistic industry.
Though unsightly, the problem extends far beyond optics. Rather, the excess presents fire risks and other environmentally damaging aftereffects. For years, activists attempted to clean up the mess of old abandoned mines, with declining government funds a pressing problem.
However, leave it to the ingenious executives behind Stronghold Digital Mining to pioneer a novel, almost unfathomably ironic solution: use energy-intensive Bitcoin extraction to ameliorate the environment and bolster the bottom line.
When is the Stronghold Digital Mining IPO Date?
Easily a creative initial public offering (IPO) that will likely imprint itself into the collective memory for years to come, Stronghold Digital Mining is scheduled to price its deal on Oct. 19, 2021. Analysts anticipate the per-share rate to fall between $16 and $18, with the offering involving the distribution of just under 5.9 million shares. At the midpoint of the estimated spectrum, Stronghold will raise $100 million.
Assuming no unforeseen hiccups in the proceedings, the novel Bitcoin mining firm will ink its debut on the IPO calendar on Oct. 20. Shares will trade on the Nasdaq exchange under the ticker symbol SDIG. Based on the terms of the deal, Stronghold will command a market capitalization of $769.5 million on its debut.
B. Riley Securities is providing lead bookrunning services. The IPOs that the financial services firm has led returned an average of 5.1% over a 12-month period following their public market debut. Also contributing bookrunning management services are Cowen Inc. (NASDAQ: COWN) and Tudor, Pickering, Holt & Co.
While any IPO presents risks due to lacking a market track record to gauge, SDIG stock will effortlessly command a large audience due to tackling 2 relevant themes: environmental advocacy and Bitcoin speculation.
As The New York Times reminded its readers, Bitcoin mining — or the process of extracting Bitcoins through intensive calculations serving as the basis of competition to verify transaction data in the underlying blockchain network — consumes more electricity than many countries. But because the price of Bitcoin has gone meteoric recently, the reward for running cryptocurrency-mining operations can be incredibly lucrative.
Of course, the price of Bitcoin itself must cooperate with Stronghold Digital’s ambitions; otherwise, the trajectory for SDIG stock can get ugly in a hurry. Therefore, prospective participants must be aware that Stronghold is unusually risky. While all businesses face operational and industry-related headwinds, the mining firm could easily fail if the cryptocurrency market implodes — irrespective of whatever management does to support the organization.
Stronghold Digital Mining Financial History
Undergirding the financial backdrop of SDIG stock is an eco-friendly Rube Goldberg machine that just might work. Similar to the lab experiment that millions of physics students encountered in their curriculum, a key lesson in such comically convoluted contraptions is that a single catalyst can spark multiple reactions through the conversion of energy from 1 form into another.
But instead of the conversions being dominoes and cleverly placed mousetraps, this Rube Goldberg machine aims to convert coal refuse piles — of which there are plenty in Stronghold Digital’s home operations of Pennsylvania — into practical energy, energy which can then be used to mine Bitcoin. In turn, the crypto coin theoretically replaces the need for additional government funding to incentivize coal-refuse cleaning initiatives.
But what about the positive environmental impact? Aside from removing the coal refuse, the burning of this waste product generates beneficial use ash as a byproduct. Essentially a fertilizer, Stronghold can then deploy the ash in areas affected by coal refuse, promoting organic land reclamation.
Though the idea of turning blackened wastelands into thriving gardens of Bitcoin seems like a 21st century version of alchemy, the back-of-the-napkin math does suggest feasibility under the right circumstances. In the Times article, mining 1 Bitcoin could cost on average about $12,500 in electricity. However, the Oct. 19, 2021, price for the crypto is just under $62,000. A near-400% profit margin is not a bad way to do business.
But unlike other enterprises, Bitcoin is fungible. In other words, a Bitcoin mined in Pennsylvania using coal refuse as fuel is the same as another Bitcoin extracted from an energy-rich (and therefore more profitable) source. While fungibility offers advantages in specific contexts, as a service provider, it’s a killer because it leads to commoditization. That is, 1 Bitcoin is no better than another.
Not surprisingly, Stronghold Digital’s financial statements imply more tweaking is needed before it becomes a truly viable company. For instance, operating losses amounted to $2.44 million in 2020, while the same metric slipped into red ink to the tune of $4 million in the 6 months ending June 30 of this year. That’s despite Bitcoin hitting lofty heights during this period, signifying great risk.
Stronghold Digital Mining Potential
Undoubtedly, many speculators will tune into SDIG stock as a proxy bet on Bitcoin. Given the cryptocurrency’s history of wild price swings, some investors may feel safer with publicly traded securities over decentralized blocks of codes that are anchored to murky jurisdictional waters, if even such waters are available.
Because major governments and central banks largely do not regulate virtual currencies, your losses in the digital realm are not insured. Again, such naked risk doesn’t align with all investors’ tolerance for potentially wild variables, making something like SDIG stock much more palatable. As well, using put options strategies, one could hedge their exposure to this mining outfit in a manner that is not conveniently available for direct investors of Bitcoin.
But arguably the most important factor to determine the potential — whether positive or negative — of SDIG stock is the valuation arithmetic. Per the Pittsburgh Post-Gazette, the company has 3,000 mining processors on site already: “Stronghold has contracted for 26,150 more miners and will use the money from its initial public offering to buy an additional 55,800 machines by the end of 2022.”
Frankly, procuring that many mining rigs is a dangerous wager given that nobody knows what will happen to the crypto market. With digital assets proving multiple times that they’re capable of devastating double-digit losses, the probability of Stronghold getting caught out is a non-zero number.
How to Buy Stronghold Digital Mining IPO (SDIG) Stock
Participating in an IPO on the open market is the most straightforward approach when dealing with new issues, especially if you already know how to buy stocks. If not, just follow the steps below.
Step 1: Pick a brokerage.
Due to similar cost structures, those interested in building their investing acumen should narrow their list of best brokers to platforms that provide superior offerings, including pre-IPO access or new issues at their initial offering price for select enterprises going public.
Step 2: Decide how many shares you want.
No one knows what will happen next when a stock enters the public arena. Therefore, mitigate the risk of the unknown with a balanced share count.
Step 3: Choose your order type.
Before placing your trade, learn these market concepts.
- Bid: The buyer’s best offer for a stock.
- Ask: The seller’s lowest acceptable price.
- Spread: The difference between the bid-ask price, the spread indicates market risk as this is also the profit margin for market makers. Tighter spreads imply higher volume and therefore lower risk. Wider spreads indicate less demand and higher risk, so the market maker will ask for more profitability.
- Limit order: Buy or sell requests at a predetermined price, limit orders provide transparency but no execution guarantees.
- Market order: Market orders guarantee fulfillment but only at the current rate.
- Stop-loss order: Stop-loss orders automatically exit your position at either a predetermined price or anything lower.
- Stop-limit order: Stop-limit orders only leave positions at a specified price, but they also carry non-fulfillment risks.
Step 4: Execute your trade.
Follow these steps to execute a market order:
- Select your action type (buy or sell).
- Enter the shares you want to acquire (or sell).
- Hit the Buy (or Sell) button.
Follow the same sequence for limit orders (but include your execution price).
SDIG Restrictions for Retail Investors
Before partaking in an IPO, review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons to avoid legal woes. To be safe, anyone with privileged information regarding a specific investment should refrain from participating.
Companies like ClickIPO help democratize the rarefied traditional public market debut by distributing pre-IPO shares to members for specific opportunities.
Alchemy or Reality?
Although the upcoming IPO of Stronghold Digital Mining is an extraordinarily compelling one, it also poses exceptional risks. True, the goal of profitably cleaning the environment is a noble and ingenious one. However, the valuation of SDIG stock is inextricably woven into a narrative that may or may not materialize.
Disclosure: The author held a long position in Bitcoin.