Sphere 3D Makes a Bitcoin Gamble in an Eroding Reward Market

Time:2022-01-02 Source: 918 views Trending Copy share

By Josh Enomoto, InvestorPlace Contributor

I’m not one to argue with Louis Navellier and the amazing work that his research team does every day. He’s Louis Navellier and I am not. At the same time, I feel compelled to bring in some color commentary regarding his take on Sphere 3D (NASDAQ:ANY) stock.

A pile of pink-toned cryptos.
Source: Shutterstock
While he’s not wrong to be hopeful for ANY stock, there’s more story to be told about this latest cryptocurrency-themed investment.

As Navellier pointed out, Canada-based Sphere 3D primarily operates in the software industry, with a particular focus on containerization, virtualization, and data management solutions via hybrid cloud, cloud and on-premise implementations. All relevant stuff, but you know what else is more relevant? Bitcoin (CCC:BTC-USD), and that’s really where the recent excitement over ANY stock originates.

Navellier set up the Sphere 3D angle in two contexts: first, that the company is aggressively pivoting toward the Bitcoin mining business and second, management announced a merger agreement with Gryphon Digital Mining. Per a press release, the partnership seeks to “bring the first 100% renewable energy Bitcoin mining company to the public markets.”

The new-found attraction toward Sphere 3D is understandable. “Now that Sphere 3D is heavily involved in cryptocurrency mining, traders will need to adjust their strategies accordingly. Specifically, ANY stock is likely to be correlated to Bitcoin’s price. That shouldn’t be a problem if you’re bullish on crypto in general,” wrote Navellier.

I don’t necessarily disagree with the premise. While directly investing in the cryptos themselves arguably provides the best reward potential, the infrastructural risks are plentiful. For instance, a hacking incident or government confiscation could ruin your day in a manner largely unimaginable if you had instead invested in crypto-related stocks.

But that probably won’t spare ANY stock if the Bitcoin market collapses – a non-zero probability. And companies have to perform, adding another layer of risk.

Avoid the ESG Misdirection with ANY Stock
The above is a very simple argument against ANY stock that any person can make. But the more pressing concern I have is the eco-friendly narrative, the ESG acronym which stands for environmental, social and governance.

Obviously, the idea of mining Bitcoin through renewable energy sources sounds incredibly appealing. By using “free” energy sources (i.e., the sun or wind), you can sit at home extracting cryptos. Basically, renewably sourced Bitcoin is the industrial Rube Goldberg machine, except that in this case, rather than getting an “A” in your lab report, you receive virtual currencies.

However, I highly doubt that Rube Goldberg concepts translate into real-world economic dynamics. For instance, if a product becomes easier to manufacture, costs go down. It’s why any worker today can reasonably afford a flatscreen TV. It’s also the reason why aluminum is no longer considered a precious commodity.

In other words, ANY stock will be an ironic investment if the underlying company succeeds in mainstreaming renewably sourced Bitcoin. You make a process that easy and cheap, competition will jump right in and commoditize the industry down to razor-thin margins.

And that’s why I’m beginning to view the ESG storyline that’s tagged to ANY stock or any crypto venture as a misdirection. Because honestly, let’s think about what ESG means at its core. Sure, you may feel good about responsibly sourced Bitcoin, but is it really responsibly sourced?

Who’s making the semiconductors and electronic components of these mining rigs anyways? Or the solar panels that receive “free” energy from the sun? What I’m getting at is if the source of the source is actualized by forced labor, I’m not sure how you can use the label ESG.

A Very Basic Concern
Before I receive any angry emails about personal responsibility and trickle-down economics, please note that I’m not pointing fingers. Instead, I’m merely pointing out the intellectually consistent point that if a process is ESG, it should be ESG for the output and the input.

But forget all that. I have a much more basic concern about ANY stock, and it boils down to Sphere 3D’s procurement of 60,000 BTC mining rigs. That’s a massive risk to be taking considering that no one knows for sure what will happen to the Bitcoin price.

However, the market price could be the least of the problems facing ANY stock. Rather, it’s Bitcoin’s fungibility. Oh yeah, that’s another term that blockchain proponents float around because fungibility facilitates borderless transactions.

That’s wonderful for the BTC user. But for miners, fungibility is a killer because it fosters commoditization; that is, one Bitcoin is no different than another. Therefore, how do you distinguish yourself other than brute-force attacks on your cost structures?

By no means am I against ANY stock. I’m just saying look beyond the marketing literature and think critically about this so-called opportunity.

On the date of publication, Josh Enomoto held a LONG position in BTC. The opinions expressed in this article are those of the writer.

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