Crypto investors may feel beaten down these past few months, but Stifel GMP sees attractive opportunities for savvy traders in the current bear market for well-capitalized operators.
The analyst firm has lowered price targets for the cryptocurrencies it covers after the month of October proved to be challenging for mining operators, but remained upbeat on certain opportunities in the sector.
While the network hashrate continued to march to new all-time highs, Bitcoin traded somewhat sideways, noted the analysts. Meanwhile, Ethereum’s long-term staking strategies make it attractive to investors, Stifel said.
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In a note, the broker said overall network hashrate is currently hovering around 262 exahash per second (EH/s) – up around 17% since the beginning of September – while the spot price for Bitcoin sits at around US$20,500, lowered from US$21,700.
“We continue to view our top picks, Hut 8 Mining Corp (TSX:HUT). and HIVE Blockchain Technologies, as well-positioned to weather the current bitcoin price/hash rate environment given scaled operations along with the financial flexibility to capitalize on growth opportunities as newer generation mining equipment and sub-scale peers become increasingly more attractive,” the brokers wrote in a report.
Stifel said its crypto mining coverage is down an average of 81% year-to-date, compared with Bitcoin, which is down around 55% year-to-date.
The broker has updated its hashrate forecast to 285 EH/s for current year 2022 and 309 EH/s for current year 2023, up from 240 EH/s and 260 EH/s, respectively. Effectively, this lowers revenue growth and margin forecasts across the coverage on a net basis, Stifel noted.
One positive aspect is that the cost of mining equipment is becoming increasingly attractive.
“Earlier this week, we saw ARBK sell an additional 3,834 new Bitmain S19J Pro machines for around US$15 per terrahash, representing the lowest prices we have come across this year and highlights managements eagerness to source additional capital,” Stifel wrote.
On the other hand, Stifel noted that the break-even electricity price for some hardware models continues to worsen.
“This has been a headwind for operators that do not have access to cheap energy. For context, Bitmain Antminer S19J Pro machines have a breakeven electricity price of US$0.10 per kilowatt hour,” according to the brokers.
Ethereum (ETH), one of the biggest cryptocurrencies around, saw meaningful price recovery in the final weeks of October is currently trading at around US$1,600 per token, down 57% year-to-date.
Stifel said it continues to see bullish supply-demand dynamics as incrementally more ETH is deposited for staking, implied staking yields that exceed 7%, and a significant reduction to potential selling pressure as a result of reduced issuance and the burning of ETH tokens.
“We continue to view Tokens.com (OTCQB:SMURF, NEO:COIN.AQN) and Ether Capital (NEO:ETHC) Corp as attractive vehicles to gain exposure to the Ethereum ecosystem, both of which have direct exposure to the token and long-standing staking strategies,” the analysts wrote.
Cautious optimism for select crypto stocks
Stifel rated Hut 8 Mining Corp (TSX:HUT). as a ‘Speculative Buy’, noting the company produced 277 bitcoin equivalents in September and has an unencumbered treasury sitting at 8,388 Bitcoin.
“The company’s hashrate grew to 3.07 EH/s, which excludes legacy miners that the company anticipates will be fully replaced by end of the year, and continued to receive monthly shipments of new MicroBT miners. HUT is targeting a total operating hashrate of around 3.5 EH/s by end of the year,” the brokers wrote.
Stifel also rated HIVE Blockchain Technologies as a ‘Speculative Buy’, as the company produced 396.3 bitcoin equivalents in September and leads peers based on productivity with around 122 Bitcoin generated per average ASIC hashrate in the period. The brokers said HIVE expects additional capacity to come online this month, which includes an initial shipment of Intel Blockscale ASICs.
Greenidge Generation Holdings is rated as ‘Hold’, according to Stifel, as the company released fiscal third quarter 2022 preliminary financial and operating results, guiding toward a top-line of around US$29 million, including US$18 million of contribution from cryptocurrency mining operations, while anticipating a mid-point adjusted EBITDA loss of around US$2 million.
Stifel also noted that Core Scientific could be facing insolvency. Core Scientific has said it would halt making financing payments that come due later this year and anticipates cash will be depleted by no later than the end of 2022. The company is the largest public miner on account of hashrate with 22.5 EH/s capacity online across self and hosted mining operations, according to the broker.
In addition, Stifel said that CleanSpark Inc (NASDAQ:CLSK). is targeting 5.5 EH/s by end of year, and purchased around 6,500 ASICs from Mawson for US$40 million, while TeraWulf announced US$17 million in new capital.
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