Crypto miners are facing uncertain times as the recent halving event has altered Bitcoin's economic dynamics. However, Cantor Fitzgerald analysts believe that optimism remains high for the Bitcoin mining sector.
Bitcoin prices have stayed elevated, and with a global network hash rate of roughly 600 EH/s, every publicly traded Bitcoin miner can mine Bitcoin profitably. As such, Bitcoin miners offer an attractive and leveraged approach to investing in Bitcoin, essentially allowing them to mine Bitcoin at a discount to spot prices.
According to Cantor Fitzgerald, growth is a primary focus for Bitcoin miners, with growth capex equating to maintenance capex. As new rigs are deployed, they not only increase hash rate capacity but also improve efficiency, lowering the cost of mining Bitcoin.
Cantor has started research coverage on 7 new stocks, all rates “Overweight.”
A few companies like Cleanspark (NASDAQ:CLSK), Marathon Digital (NASDAQ:MARA), and Riot Platforms (NASDAQ:RIOT) have positioned themselves as large-scale miners. These firms have gained a competitive edge from increased trading activity, ample financial liquidity, and a strong financial position to capitalize on acquisition opportunities.
“We believe CLSK offers the best growth story, RIOT offers the best combination of growth/valuation, CIFR the best way to play power expertise, and WULF the best way to play the AI/HPC theme,” analysts said in a note.
Investors who are disappointed by the recent underperformance of mining stocks compared to Bitcoin's price may overlook that this correlation is sustainable but often behaves like a coiled spring.
Cantor Fitzgerald forecasts that hash rate capacity among the seven miners they cover will increase from 59.7 EH/s in April 2024 to 230.5 EH/s by the end of 2025.
Stable power costs will also drive down the cost to mine Bitcoin, assuming the network hash remains stable. However, the report is bullish on the price of Bitcoin and expects the network hash rate to increase to 900 EH/s by the end of 2025.
Cantor Fitzgerald believes that the share of total hash controlled by publicly traded Bitcoin miners will increase over time. Currently, publicly traded miners control around 20-25% of the total network hash. With Bitcoin halving, the cost to mine has doubled, and while new rigs are more efficient, the marginal operator will face challenges, particularly with another halving expected in 2028.
Cantor Fitzgerald favors miners that are low-cost, have scale, and possess liquidity. A flexible balance sheet enables miners to be aggressive with growth, either organically or inorganically. That said, miners lacking these advantages will struggle to grow and keep pace with peers, leading to declining market share.
With the AI boom, demand for high power compute (HPC) has increased, providing Bitcoin miners with the option to use excess power capacity to support AI/HPC needs. Some miners are actively exploring this opportunity, such as Core Scientific Inc 's (NASDAQ:CORZ) recent deal with CoreWeave.
Cantor Fitzgerald believes the net present value (NPV) of this deal, based on $1.5 million of capex build per MW, is $12 million per MW. Among their coverage, WULF and Iris Energy Ltd (NASDAQ:IREN) are best positioned to benefit from this trend due to their secured power capacity and early involvement in AI/HPC.
Meanwhile, Riot Platforms has one of the lowest costs to mine, and the best balance sheet in the sector. The report further notes that Cipher Mining boasts the lowest energy cost among peers while Cleanspark is set to secure the largest hash rate by the end of 2024.