The Executive Chairman and co-founder of CleanSpark Inc., S. Matthew Schultz, recently shared JPMorgan’s latest research on the stocks of Bitcoin mining companies. This report, titled “Bitcoin Mining: Expanding Coverage,” delves into the fundamental analysis of CLSK, CIFR, RIOT, and MARA.
On October 11, JPMorgan’s North America equity research team published a report that addressed the challenges being faced in the Bitcoin mining industry. They discussed the increasing hashrate and the potential risks posed by the upcoming block subsidy halving for Bitcoin, emphasizing the pivotal moment for the industry:
“The bitcoin mining industry is at a crucible moment as management teams (and investors) weigh the prospects of a Bitcoin ETF, which may catalyze a rally, against record hashrate increases and the looming block reward halving that threaten industry revenues and profitability.”
The report highlights that the combined market capitalization of the 14 largest U.S.-listed Bitcoin mining companies exceeds JPMorgan’s revenue projections for the entire industry’s next four-year cycle, which is $20 billion.
Interestingly, the report also underscores the hashrate centralization in the Bitcoin industry. JPMorgan explains that the concentration of hashrate among these 14 major Bitcoin mining companies contributes to 25% of the total global hashrate. These findings align with JPMorgan’s previous reports on increasing centralization in the Bitcoin network.
Moreover, the banking giant notes that 20% of the current hashrate would be at risk after the upcoming halving, underscoring the importance of selecting the right companies for investment.
The bank has started its coverage of the listed miners, with CleanSpark (CLSK) at the top due to its balance of scale, growth potential, power costs, and relative value. It reads:
“Not all miners are created equal. […] We believe CLSK, our top pick, offers the best balance of scale, growth potential, power costs, and relative value. MARA is the largest operator but has the highest energy costs and lowest margins. RIOT has relatively low power costs and liquidity and is nearing completion of a large facility, but is by far the most expensive name in our coverage universe. CIFR has the lowest power costs but is growth constrained.”
Why is Decentralized Bitcoin Distribution Crucial?
A more decentralized Bitcoin distribution offers several advantages. Fewer entities holding a larger share of the supply or traded volume can manipulate prices more easily. It reduces the risk of market price manipulation and disperses ownership, mitigating vulnerability to sell-offs.
Decentralization enhances security by making it challenging for a malicious entity to take over the network’s consensus. In a decentralized network, it’s more difficult to achieve a 51% attack, where an attacker spends the same coin twice, compromising the integrity of the network.