Exploring Infrastructure Opportunities in the Public Markets: A Deep Dive into the Bitcoin Mining Industry
Investors and miners in the cryptocurrency industry are gearing up for the fourth halving, predicted to occur around April 19. With daily revenues reaching close-to-record highs, the industry is experiencing significant growth, with a run rate of $26.1 billion. As one of the leading investors in the space, with nearly $100 million allocated in their portfolio, the outcome of how this business is financed and valued is crucial.
Despite the optimism among investors, there is a sense of trepidation among miners and investors as they approach the halving. Some miners are expecting profitable financial results in the first quarter, but many mining stocks may be undervalued, with forward-EV/EBITDA multiples in the low single digits for 2024 and 2025.
The valuation metrics for these companies assume a Bitcoin price between $70,000 to $100,000, which seems reasonable given the current momentum in the price of Bitcoin. However, the execution risk at scale for these technology companies remains a significant challenge.
In the industry, companies are categorized into different buckets based on their business models and growth strategies. Accelerators like Cleanspark, Marathon Digital, and RIOT Platforms are aggressively raising capital and positioning themselves as large-scale miners. They are expected to show accelerating growth in revenues due to higher Bitcoin prices and exahash expansion.
Pragmatic-oriented companies like Core Scientific, Iris Energy, Bit Digital, and Hut8 are focusing on high-performance computing and AI, which are in high demand. These companies are led by managers who prioritize traditional financial metrics and disciplined growth strategies.
Lastly, there are distressed/value plays in the industry, with some micro-cap companies potentially facing financial challenges. While these companies may be in a distressed situation, there is still potential for growth through acquisitions or consolidation.
As the industry prepares for the fourth halving, investors and miners are navigating the challenges and opportunities presented by the evolving landscape of the cryptocurrency market. With the potential for significant growth and valuation changes, the industry remains a dynamic and exciting space for investors to watch.
