Crypto-miners jostle for market share in 2022

  • Marathon Digital expects 199,000 bitcoin miners to produce around 23.3 PE/s by early 2023
  • Stronghold Digital Mining, which owns its power, is looking to buy additional factories and scale up its equipment and mining operations this year

Cryptocurrency miners will diversify their revenue streams and business models from each other this year, according to Compass Point Research and Trading.

The cryptocurrency research firm estimates that the global hashrate will reach 327 exahashes per second (EH/s) by the end of 2022, a nearly 60% year-over-year increase, according to a note from Chase White. The hashrate could reach 587 PE/s by the end of next year, he added.

“While we believe our estimate of hash rate growth is relatively aggressive compared to consensus, we view it as a more conservative approach given that miner revenue and cost per BTC are directly related to global share. hash rate, potentially suggesting an uptick in our estimates if growth is weaker than expected,” White wrote.

Bitcoin was trading around $38,800 as of 2 p.m. ET on Tuesday.

Compass Point expects bitcoin prices to average around $49,000 this year — ending the year at $65,000 — and to average $81,000 in 2023 among retail investors, wrote White.

“We don’t believe all miners are created equal, and we believe 2022 is the year investors begin to examine the differentiators between companies and their businesses,” he wrote. “These factors lead us to favor Marathon (MARA) among large-scale miners and Stronghold Digital Mining (SDIG) among small-scale miners.”

Marathon vs. Riot Blockchain

Marathon has 35,510 active miners producing around 3.8 PE/s, the company reported last week. It increased the hash rate by 8% from the previous month after deploying 2,800 miners.

Marathon mined 360.3 bitcoins in February, a 730% increase from 43.4 bitcoins in February 2021. The company now holds 8,956 bitcoins, currently valued at nearly $350 million.

While many miners take the vertical integration route by owning infrastructure and power sources, Marathon has taken the opposite tactic, according to Charlie Schumacher, vice president of corporate communications.

The company owns its machines but partners with other companies that provide infrastructure, as well as power companies that mainly offer renewable energy, he said. The infrastructure purchase was not an attractive return on Marathon’s investment, Schumacher said.

“We could have spent $750 million building a data center, but instead we spent $750 million buying machines and increasing our hashrate,” Schumacher said. “We prefer to buy assets that generate income rather than own assets that do not.”

Hut 8 Mining, a company not included in the Compass Point report, recently acquired five data centers as it seeks to expand its cloud computing business.

Marathon’s goal this year is to deploy the miners it has purchased. Marathon expects 199,000 bitcoin miners to produce around 23.3 PE/s by early 2023, Schumacher said, and expects its mining operations to be 100% carbon neutral by by the end of 2022.

The company’s status as a large-scale miner with broad access to capital likely gives it a first glimpse of any available hosting capacity, White wrote. He downgraded Riot Blockchain’s rating from buy to neutral, noting that Marathon offers a better edge.

Riot produced 436 bitcoins in February, bringing the total it holds to 5,783 BTC, the company reported last week. Riot, which has a fleet of 38,310 miners with a hash rate of 3.9 EH/s, projects a total self-mining hash rate capacity of 12.8 EH/s by January 2023 .

As with other miners featured in the report, Compass Point retained its buy rating for Argo Blockchain and lowered its rating for Iris Energy from buy to neutral.

Stronghold’s 2022 focus

Compass Point’s preference for Stronghold over other small miners is driven by its relatively low energy costs, diversified revenue streams, and low-cost options on additional power capacity.

“We recognize that there is execution risk on the path to capacity,” White wrote.

The company, which went public last year, generates electricity from waste byproducts from former coal mining operations. It focuses on maximizing the benefits of possessing its energy, which is usually the highest cost for miners.

“By owning our own energy assets, we can continue to grow our mining operations and clean up the environment at the same time,” Stronghold CEO Greg Beard told Blockworks in an email. “It also allows us to stabilize the region’s power grid at a time of questionable energy security, not just locally and regionally, but globally.”

The company acquired its second plant, the Panther Creek Energy Facility in Pennsylvania, last November. It said it had around 14,000 miners with a capacity of 1.3 PE/s in January.

“We’re plugging in miners and ramping up our mining power as fast as we can,” Beard said. “This will really unlock the growth potential of our vertically integrated operation as we will have the lowest energy cost in the industry.”

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  • Ben Strack

    Ben Strack is a Denver-based journalist who covers macro and crypto-native funds, financial advisors, structured products, and the integration of digital assets and decentralized finance (DeFi) into traditional finance. Prior to joining Blockworks, he covered the asset management industry for Fund Intelligence and was a reporter and editor for various local Long Island newspapers. He graduated from the University of Maryland with a degree in journalism. Contact Ben by email at [email protected]

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