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JPMorgan Analyzes Bitcoin Mining Industry's Pivotal Juncture

Oct 13, 2023 at 09:28 am

JPMorgan's latest research report marks a pivotal moment in the Bitcoin (BTC) mining landscape. The potential green light for a spot BTC exchange-traded fund (ETF) has the potential to ignite substantial growth. This is particularly significant given the historically unprecedented levels of hashrates and the impending block reward halving. However, these advancements also bring about challenges to the industry's revenue streams and overall profitability.

At this critical juncture, JPMorgan places paramount importance on mining operators that demonstrate exceptional relative value. Factors such as existing hashrates, operational efficiency, power agreements, robust expansion strategies, and liquidity are key considerations. This viewpoint is conveyed by analysts Reginald Smith and Charles Pearce.

CleanSpark (CLSK) emerges as JPMorgan's favored choice among mining operators. The bank confers upon it an overweight rating, coupled with a target price of $5.50. CleanSpark distinguishes itself with its commendable scale, robust growth potential, competitive power costs, and relative value.

Marathon Digital (MARA), as the largest mining operator, grapples with the challenge of high energy expenses and slender profit margins. As a result, JPMorgan assigns an underweight rating, alongside a $5 target.

Riot Platforms (RIOT) showcases relatively lower power costs and robust liquidity. However, it also bears the highest stock price within the coverage scope. Consequently, JPMorgan designates it as underweight, with a $6.50 target.

Cipher Mining (CIFR) touts the lowest power costs among its peers. However, it contends with limitations on its growth potential, as highlighted in the report. JPMorgan evaluates Cipher Mining as neutral.

In a positive shift, JPMorgan revises its rating for Iris Energy (IREN) from neutral to overweight, signaling an optimistic outlook.

The decision from the U.S. Securities and Exchange Commission (SEC) regarding the approval of a spot bitcoin ETF is anticipated this month. The industry is optimistic that this approval will usher in a surge of mainstream capital.

While the estimated four-year block reward opportunity stands at around $20 billion at current Bitcoin prices, the impending block reward halving, scheduled for the second quarter of 2024, is expected to impact profitability. JPMorgan suggests that up to 20% of the network's hashrate may be at risk due to the decommissioning of less efficient mining computers in the face of this halving.

As the Bitcoin mining industry stands at this critical juncture, JPMorgan's insights and recommendations offer invaluable guidance for investors and operators alike. The potential approval of a spot BTC ETF, combined with the challenges posed by record-breaking hashrates and the upcoming reward halving, underscores the necessity for strategic evaluation and preparedness within the mining sector.

Read more: Cryptocurrency Miners Exploring Diverse Business Ventures, JPMorgan Reports

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