The Bitcoin(BTC) mining sector is at a pivotal juncture, according to a recent research report by JPMorgan.
The potential approval of a spot BTC exchange-traded fund (ETF) could instigate a significant rally. This comes amidst the backdrop of record-breaking hashrates and the anticipated block reward halving, both of which could adversely impact the industry’s revenue and profitability.
JPMorgan’s report, released on Wednesday, emphasizes the bank’s preference for mining operators that present the best relative value. This assessment is based on various criteria, including their existing hashrate, operational efficiency, power contracts, funded growth strategies, and liquidity. The report was penned by analysts Reginald Smith and Charles Pearce.
The bank has initiated its research coverage on several mining companies. CleanSpark (CLSK) received an ‘overweight’ rating with a price target set at $5.50. In contrast, Marathon Digital (MARA) and Riot Platforms (RIOT) were both rated ‘underweight’ with price targets of $5 and $6.50, respectively. Cipher Mining (CIFR) was given a ‘neutral’ rating. Additionally, Iris Energy (IREN) saw its rating upgraded from ‘neutral’ to ‘overweight’.
The U.S. Securities and Exchange Commission (SEC) has postponed its decision on the approval of a spot bitcoin ETF until later this month. The cryptocurrency market remains optimistic, hoping that an approval would usher in a surge of mainstream investment into the sector.
CleanSpark stands out as JPMorgan’s top choice, striking the ideal balance in terms of scale, growth potential, power costs, and relative value. The report also provided insights into other mining operators. Marathon, despite being the largest mining operator, grapples with the highest energy costs and the slimmest profit margins. Riot, on the other hand, benefits from relatively low power costs and liquidity but is deemed the priciest stock in JPMorgan’s coverage spectrum.
Cipher Mining, among its peers, boasts the lowest power costs. However, its growth potential is perceived as limited. The bank’s report also delves into the financial implications of the upcoming block reward halving. It estimates the four-year block reward opportunity to be around $20 billion, given the current bitcoin prices.
The impending block reward halving, slated for the second quarter of 2024, could pose significant challenges to profitability. JPMorgan projects that nearly 20% of the network’s hashrate could be jeopardized due to the halving, leading to the decommissioning of less efficient mining computers.