The bitcoin (BTC) mining industry is at a crucible moment, as the approval of a spot BTC exchange-traded-fund (ETF) could catalyze a rally against a backdrop of record hashrates and the impending block reward halving that threaten the industry's revenues and profitability, JPMorgan (JPM) said in a research report Wednesday.
The bank favors mining operators that offer the best relative value in light of their “existing hashrate, operational efficiency, power contracts, funded growth plans and liquidity,” analysts Reginald Smith and Charles Pearce wrote.
JPMorgan initiates coverage of CleanSpark (CLSK) with an overweight rating and a price target of $5.50; Marathon Digital (MARA) at underweight with a $5 target; Riot Platforms (RIOT) at underweight with a $6.50 target, and Cipher Mining (CIFR) at neutral. The bank also upgraded Iris Energy (IREN) to overweight from neutral.
The U.S. Securities and Exchange Commission (SEC) has delayed its decision on whether or not to approve a spot bitcoin ETF until this month. The crypto market is hopeful that any approval will trigger a flood of mainstream money into the sector.
CleanSpark is the bank’s top pick, offering the best balance of “scale, growth potential, power costs and relative value.”
The analysts said that Marathon is the largest mining operator but has the highest energy costs and lowest margins. Meanwhile, Riot has relatively low power costs and liquidity but is the most expensive stock in their coverage universe.
Among the peers, Cipher Mining has the lowest power costs but is “growth constrained,” the report noted.
The bank estimates the four-year block reward opportunity at around $20 billion at current bitcoin prices. However, the looming block reward halving, expected in the second quarter of 2024, could impact profitability. It estimates that as much as 20% of the network hashrate is at risk from halving as less efficient mining computers are decommissioned.
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