This week, Bitcoin mining stocks experienced losses amidst a broader weakening in Bitcoin prices. Despite a multi-day correction phase that appears to be decelerating, the overarching bullish sentiment for digital assets remains intact.
One of the primary concerns rattling the market is the anticipated Bitcoin halving event, slated to occur in late April at a block height of 840,000. The halving is a predetermined event that reduces the reward for mining new blocks by half, thereby diminishing the rate at which new bitcoins are generated.
“...Many big mining farms know they potentially face a tough few months after the halving and are converting to fiat while prices are good, to prepare to dig in,” Nejc Kržan, Head of NiceX Exchange, told Investing.com.
In a recent in-depth analysis by JPMorgan (NYSE:JPM), the financial giant revisits the operational and financial trends of the bitcoin mining industry amidst a crypto selloff. The report evaluates the performance and strategic positioning of leading mining companies such as Cipher Mining Inc (NASDAQ:CIFR), CleanSpark (NASDAQ:CLSK), Iris Energy Ltd (NASDAQ:IREN), Marathon Digital (NASDAQ:MARA), and Riot Platforms (NASDAQ:RIOT), projecting a hopeful outlook for the sector in 2024.
According to JPMorgan equity analysts, "the broader mining industry recorded its largest quarterly gross profit since 2Q22" during the fourth quarter of 2023, signaling a strong recovery. The report further anticipates "industry-wide gross profits ticking higher in 1Q24," although it expects a downturn in "2Q24 as the block reward is halved," indicating the cyclical nature of the mining industry's profitability.
Marathon Digital notably stood out as the industry's top performer in 2023, with JPMorgan highlighting its capacity additions and Bitcoin output. "MARA was the runaway winner in '23, adding the most capacity and mining more bitcoin than any operator in our coverage universe," the report states.
Looking ahead, the report identifies Riot Platforms and CleanSpark as key players poised for strong growth. "RIOT and CLSK are poised for the most capacity growth in '24, which bodes well for stock performance in our view," JPMorgan analysts predict.
In addressing operational efficiencies, the report reveals a competitive edge for Cipher due to its low power costs per coin mined at $9900 in Q4 2023, contrasting with Marathon's higher costs. Yet, it praises Marathon's operational strategies, saying, "Marathon posted the lowest cash SG&A cost per coin in 4Q23 ($4800) driven by its scale and relatively lean operations."
The analysis also sheds light on the sector's financing activities, revealing that "the five miners in our coverage universe issued more than $2bn in equity via ATM offerings in '23," a significant uptick from the previous year.
JPMorgan's report concludes with an optimistic view of the mining industry's resilience and adaptability. "We think miner profitability will tick higher in 1Q24 before declining meaningfully in 2Q24 due to the halving," it states.