Bitcoin Mining Operators Jostling for Market Share in 2022

Miners Marathon and Stronghold have more upside than competitors, analyst says


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key takeaways

  • Marathon Digital expects to have 199,000 bitcoin miners producing approximately 23.3 EH/s by early 2023
  • Stronghold Digital Mining, which owns its power, seeks to buy additional plants and scale its mining equipment and operations this year

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

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

“While we believe our hash rate growth estimate is relatively aggressive compared to consensus, we see it as a more conservative approach given that miner revenues and per-BTC costs are directly related to global hash rate share, potentially suggesting upside to our estimates if growth is lower than expected,” White wrote.

Bitcoin traded around $38,800 at 2 pm ET on Tuesday.

Compass Point expects bitcoin prices to average roughly $49,000 this year — ending the year at $65,000 — and rise to an average of $81,000 in 2023. The expected rise is driven in part by BTC’s resilience during Russia’s invasion of Ukraine and expected increased adoption globally, especially among retail investors, White wrote.

“We do not believe all miners are created equal, and we believe 2022 is the year that investors will start to look at the differentiators between the companies and their businesses,” he wrote. “These factors lead us to favor Marathon (MARA) among the scaled miners and Stronghold Digital Mining (SDIG) among the small miners.”

Marathon versus Riot Blockchain

Marathon has 35,510 active miners producing approximately 3.8 EH/s, the company reported last week. It increased hash rate 8% from the prior 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 are going the vertically integrated 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 offer primarily renewable energy, he said. Buying infrastructure was not an attractive return on Marathon’s investment, Schumacher said.

“We could have spent $750 million to build a data center, but instead we spent $750 million to go out and buy machines and increase our hashrate,” Schumacher said. “We would rather buy assets that generate revenue than own assets that don’t.”

Hut 8 Mining, a company not included in Compass Point’s report, recently acquired five data centers as it looks to build out its cloud computing business.

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

The company’s status as a scaled miner with ample access to capital likely gives it the first look at any available hosting capacity, White wrote. He lowered Riot Blockchain’s rating from buy to neutral, noting that Marathon offers better upside.

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 hashrate of 3.9 EH/s, anticipates a total self-mining hash rate capacity of 12.8 EH/s by January 2023.

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

Stronghold’s 2022 focuses

Compass Point’s preference of Stronghold compared to fellow smaller miners is driven by its relatively low power costs, diversified revenue streams and low-cost options on additional power capacity.

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

The company, which went public last year, generates power from the waste byproduct of legacy coal mining operations. It’s focused on maximizing the benefits of owning its power, which is typically the largest cost for miners.

“In owning our own power 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 electricity grid in the region 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 reported having about 14,000 miners with 1.3 EH/s of capacity in January. 

“We are plugging in miners and expanding our mining power as fast as we can,” Beard said. “That will truly unlock the growth potential of our vertically integrated operation, as we will have the lowest cost of power in the industry.”

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