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On Friday evening, the Bitcoin network completed its fourth “halving,” slashing the rewards that miners receive from 6.25 to 3.125 bitcoins.
All else being equal, the halving should help rationalize the network hashrate and industry capital expenditures, which could ultimately benefit the crypto miners. Hash rates measure the computational power used to process transactions on the Bitcoin network. The larger a miner’s hash rate, the bigger the revenue opportunity they have.
According to Compass Point Research, the initial effects have been more positive than expected, with hash prices reaching around $0.08. This rate is beneficial for miners with an all-in hash cost of around $0.04 post-machine refresh as it enables them to achieve nearly 50% EBITDA margins.
Despite the inherent volatility in block level data, which includes fluctuations in fees and hash prices from peak levels observed on Saturday, Compass Point remains optimistic. The firm attributes its positive outlook to increased Bitcoin transaction fees driven by the introduction of features like Ordinals/inscriptions and the launch of the Runes protocol on the Bitcoin network. These developments are seen as bullish indicators for mining stocks.
“We continue to like miners trading at low valuations w/ ability to 2x there hash rate this year at much better efficiency levels,” Compass Point Research analysts said.
The hash rate, as inferred from implied block times and difficulty levels, has corrected to below 600 EH/s. This adjustment is likely due to the planned removal of older mining rigs like the s9, s17, and s19 pro series, which are less cost-effective above 6c power costs. Nonetheless, Compass Point expects a recovery in hash rates this year as newer and more efficient mining machines, such as the S/T 21s and M60s series, are installed.
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Over the medium to long term, Compass Point expects that hash prices will stabilize above the $0.045-0.05 range post-halving, which would positively impact the sector. The firm also suggests that the growth in BTC prices could counterbalance the decrease in hash rate, indicating that this cycle may be constrained by power capacity rather than ASIC availability, unlike the previous cycle.
Among the mining companies, Compass Point highlights several with promising outlooks due to low valuations and potential to double their hash rate this year at improved efficiency levels. These include Riot Platforms (NASDAQ:RIOT), Iris Energy, and Bitfarms.
Furthermore, the firm is favorable towards miners like Core Scientific and TeraWulf, who are positioned well with higher infrastructure investments and free cash flow.
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