Bitcoin Miners Are Set for a Coiled Spring Rally

Although investors remain hopeful, it’s natural for miners and investors to feel apprehensive about the upcoming halving. It’s important to note that some miners anticipating profitable first-quarter financial results may already be factored into current stock prices. Consequently, several mining stocks could be trading at very low forward EV/EBITDA multiples compared to expected values by 2024 and 2025.

It’s safe to assume a Bitcoin price between $70,000 and $100,000 for any single-digit multiple on valuation metrics, considering the current upward trend in Bitcoin’s price. However, we cannot ignore that scaling up execution for tech companies has historically presented significant challenges.

How we view the industry:

Bucket 1: Accelerators: CLSK, MARA and RIOT

Some businesses such as Cleanspark, Marathon Digital, and RIOT Platforms have established themselves as major Bitcoin miners by actively securing funds through At-The Market Offerings (ATMs). These corporations are projected to experience increasing revenues as a result of the rising Bitcoin price and substantial growth from exahash expansion. In simpler terms, these companies are large-scale Bitcoin mining operations that are rapidly obtaining funds using ATMs and are expected to see significant revenue growth due to the increasing value of Bitcoin and expansions in mining power (exahashes).

Instead of “As such, they have drawn a competitive advantage from an increase in trading activity, ample financial liquidity and or a war chest to capitalize on acquisition opportunities,” you could say “They’ve gained an edge over their competitors due to heightened trading volume, substantial financial resources, and the ability to seize acquisition deals.”

Bucket #2: HPC-AI Group (IREN, CORE, BTBT, HIVE, HUT)

Companies like Core Scientific (CORZ), Iris Energy (IREN), Bit Digital (BTBT), and Hut8 (HUT) prioritize practical approaches under the belief that conventional financial measurements are significant for evaluating their discipline. In simpler terms, these firms focus on both growth and adhering to traditional financial metrics in their management strategies.

While Bitcoin mining represents potential growth for them, their High Performance Computing (HPC-AI) segment is an increasingly attractive and stable business proposition. The demand for AI computing is undeniable, making HPC-AI a more dependable source of revenue compared to the unpredictability of Bitcoin prices. However, it’s important to note that the potential upside from Bitcoin price fluctuations cannot be entirely ignored.

Bucket #3: Distressed/Value Plays

To clarify, it’s preferable for a company not to be labeled as small-cap and potentially distressed since this implies the need to secure additional funding in a possibly challenging financial situation. However, we want to make it clear that there are around fifteen to twenty micro-cap companies. The term “distressed” does not necessarily mean that these companies won’t thrive or expand through acquisitions or consolidation and emerge as successful entities.