Investors in cryptocurrencies may feel like they’ve been beaten up over the past few months, but Stifel GMP thinks that smart traders with a lot of money can find good opportunities in the current bear market.
After October was a tough month for miners, the analyst firm lowered its price targets for the cryptocurrencies it follows. However, it was still optimistic about some opportunities in the sector.
Analysts pointed out that Bitcoin prices went up and down a bit while the network hash rate kept reaching new all-time highs. Stifel said that investors like Ethereum because it has long-term strategies for staking.
In a note, the broker said that the overall network hash rate is currently around 262 exahashes per second (EH/s), which is up about 17% since the beginning of September. Meanwhile, the spot price for bitcoin is around US$20,500, down from US$21,700.
The brokers wrote in a report, “We continue to see our top picks, Hut 8 Mining Corp (TSX: HUT) and HIVE Blockchain Technologies, as well-positioned to weather the current bitcoin price and hash rate environment given scaled operations and the financial flexibility to take advantage of growth opportunities as newer generation mining equipment and sub-scale peers become more attractive.”
Stifel said that its coverage of crypto mining is down an average of 81% so far this year, while Bitcoin is down about 55% so far this year.
The broker has changed its hash rate predictions from 240 EH/s and 260 EH/s to 285 EH/s for the year 2022 and 309 EH/s for the year 2023. Stifel pointed out that this lowers the forecasts for revenue growth and margins across the board.
One good thing is that the price of mining equipment is getting more and more appealing.
Stifel wrote, “Earlier this week, we saw ARBK sell an additional 3,834 new Bitmain S19J Pro machines for about $15 per terahash.” “This is the lowest price we’ve seen this year and shows how eager management is to find more capital.”
On the other hand, Stifel pointed out that the price of electricity needed to break even for some hardware models keeps going up.
“This has been a problem for businesses that can’t get cheap energy.” According to the brokers, the breakeven price for electricity for Bitmain Antminer S19J Pro machines is $0.10 per kilowatt hour.
Changes to Ethereum
Ethereum (ETH), one of the most popular cryptocurrencies, saw its price rise in the last few weeks of October. It is now worth about $1,600 per token, which is 57% less than it was at the start of the year.
Stifel said it continues to see bullish supply-and-demand dynamics as more and more ETH is deposited for staking, implied staking yields that are higher than 7%, and a big drop in possible selling pressure due to fewer ETH tokens being issued and burned.
“We continue to see Tokens.com (OTCQB: SMURF, NEO: COIN.AQN), and Ether Capital (NEO: ETHC) Corp. as attractive ways to get exposure to the Ethereum ecosystem. “Both have direct exposure to the token and long-standing staking strategies,” the analysts wrote.
Some crypto stocks have cautious optimism.
Stifel gave Hut 8 Mining Corp (TSX: HUT) a “Speculative Buy” rating, pointing out that the company made 277 bitcoin equivalents in September and has 8,388 bitcoins in its unencumbered treasury.
“The company’s hash rate grew to 3.07 EH/s, which doesn’t include legacy miners that the company thinks will be completely replaced by the end of the year.” The company continued to get new MicroBit miners shipped to it every month. By the end of the year, HUT wants to have a total operating hash rate of about 3.5 EH/s, the brokers wrote.
Stifel also gave HIVE Blockchain Technologies a “Speculative Buy” rating because the company made 396.3 bitcoin equivalents in September and was more productive than its peers, with an average of 122 bitcoins made per ASIC hash rate in the time period.
The brokers said that HIVE plans to add more capacity this month and that the first shipment of Intel Blockscale ASICs will be part of that.
Stifel gave Greenidge Generation Holdings a “Hold” rating after the company released its preliminary financial and operating results for the third quarter of fiscal 2022. The company is expecting a top line of around US$29 million, including US$18 million from cryptocurrency mining operations, and a mid-point adjusted EBITDA loss of around US$2 million.
Stifel also said that Core Scientific might not be able to pay its bills. Core Scientific said it would stop making payments on loans that are due later this year, and it expects to run out of cash by the end of 2022 at the latest. The broker says that the company is the largest public miner in terms of hash rate, with a capacity of 22.5 EH/s across both self-hosted and hosted mining operations.
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