J.P. Morgan’s Analysis of the Bitcoin Mining Industry
In a recent note titled “Bitcoin Mining: Expanding Coverage (Initiating Coverage on CIFR, CLSK, RIOT, and MARA),” J.P. Morgan analysts Reginald L. Smith and Charles Peace provide valuable insights into the Bitcoin mining industry. According to them, the sector is currently at a critical phase, with management teams and investors considering the potential introduction of a Bitcoin ETF and the challenges posed by increasing hash rates and the upcoming block reward halving.
New Coverage and Ratings by J.P. Morgan
The analysts are initiating coverage on four major players in the Bitcoin mining sector:
- CleanSpark (CLSK): Rated as Overweight with a positive outlook.
- Marathon Digital (MARA): Rated as Underweight with less optimism.
- Riot Platforms (RIOT): Also rated as Underweight.
- Cipher Mining (CIFR): Assigned a Neutral rating.
Additionally, J.P. Morgan upgraded IREN to Overweight from its previous Neutral rating.
J.P. Morgan’s Perspective on the Opportunity
Smith and Peace estimate that the four-year block reward opportunity stands at $20 billion based on current Bitcoin prices. They highlight that this figure peaked at around $73 billion in April 2021 but has fluctuated between $14 billion and $35 billion over the past year. The total market capitalization of the 14 largest U.S.-listed mining companies is also noted to be 36% of the size of the four-year block reward opportunity, higher than the three-year historical average.
Hashrate Risks According to J.P. Morgan
The analysts observe that hash rate growth in the past nine months has surpassed that of Bitcoin’s first 12 years. They predict a deceleration in the pace of hash rate growth to approximately 15 EH per quarter, with a quarterly global hardware investment of $200-$300 million. They also estimate that around 80 EH (or about 20% of the network hash rate) could be taken offline during the next block reward halving event in April 2024.
J.P. Morgan on Miner Differentiation
Smith and Peace highlight the significant variations among Bitcoin miners in terms of scale, operational efficiency, access to capital, and growth prospects. They identify CleanSpark as their top pick due to its balanced attributes, while Marathon Digital is noted for its high energy costs and low margins. Riot Platforms is acknowledged for its low power costs and liquidity but is also considered the most expensive among the companies covered. Cipher Mining is recognized for its low power costs but is limited in terms of growth.
Hot Take: J.P. Morgan’s Insights into Bitcoin Mining Industry
J.P. Morgan’s analysis provides valuable insights into the current state and future prospects of the Bitcoin mining industry. With considerations such as the potential introduction of a Bitcoin ETF, increasing hash rates, and the upcoming block reward halving, it is crucial for investors and industry stakeholders to exercise discipline and timing. The differentiated ratings assigned to major players in the sector offer guidance for making informed investment decisions. Overall, J.P. Morgan’s analysis emphasizes the importance of factors such as scale, operational efficiency, power costs, growth plans, and liquidity when evaluating mining operators.
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