Ben Strack

<div id="highlights-block_6227b74b85b0c" class="highlights">
 <ul>
 <li>Marathon Digital expects to have 199,000 bitcoin miners producing approximately 23.3 EH/s by early 2023</li>
 <li>Stronghold Digital Mining, which owns its power, seeks to buy additional plants and scale its mining equipment and operations this year</li>
 </ul>
 
</div>



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



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, <a href="https://compasspoint.bluematrix.com/links2/secure/pdf-viewer/36c024b3-5d83-4e8c-af91-e7c207a26a67" target="_blank" rel="noreferrer noopener">according to a note</a> 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. &#8220;These factors lead us to favor Marathon (MARA) among the scaled miners and Stronghold Digital Mining (SDIG) among the small miners.&#8221;



<h3 class="wp-block-heading">Marathon versus Riot Blockchain</h3>



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 <a href="https://cms.blockworks.co/bitcoin-miner-targets-gaming-web3-with-cloud-services-expansion/" target="_blank" rel="noreferrer noopener">build out its cloud computing business</a>.



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.



<h3 class="wp-block-heading">Stronghold’s 2022 focuses</h3>



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 <a href="https://cms.blockworks.co/stronghold-digital-mining-ipo-opens-55-8-above-expected-stock-price/" target="_blank" rel="noreferrer noopener">went public last year</a>, 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.&nbsp;



“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.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Don’t miss the next big story – join our <a href="https://blockworks.co/newsletter?source=end" target="_blank" rel="noreferrer noopener">free daily newsletter</a>.

Bitcoin Mining Operators Jostling for Market Share in 2022

Sam Reynolds

<div id="highlights-block_61811b11b6481" class="highlights">
 <ul>
 <li>Coinbase is forecasted to post approximately $7.5-8 billion in yearly revenue, or roughly $2 billion a quarter, by year-end. Hayden Capital thinks it can do better, and hit $50 billion by 2025</li>
 <li>Hayden Capital cites market dominance amongst the retail market, and resilience to regulatory challenges as reasons why Coinbase will thrive</li>
 </ul>
 
</div>



In 2025, crypto will have a $6.8 trillion market cap and Coinbase will command $50 billion in fees, according to a bullish report put out by Monday by Hayden Capital.&nbsp;



Hayden Capital believes that the “productization” of the crypto market thanks to DeFi, and Coinbase’s command of the fast-growing crypto retail sector as reasons why the exchange has such dramatic growth potential over the next four years. Hayden Capital points to <a href="https://www.fool.com/the-ascent/cryptocurrency/coinbase-review/" target="_blank" rel="noreferrer noopener">research</a> conducted by The Ascent, an arm of finance publication Motley Fool, which shows that “67% of American adults who own or have owned crypto have used Coinbase. No other exchange was used by more than 28% of respondents.”



<blockquote class="wp-block-quote">“We believe Coinbase’s hold on the casual retail segment results in better economics over the long run, and is a customer segment that aggressively expanding competitors like Binance.US and FTX.US have not traditionally focused on,” writes Hayden Capital.</blockquote>



“The retail-focused segment is where we feel competition is weaker,” the report continues. “[Kraken and Gemini] have not been rolling out new features and services as frequently as Coinbase has&#8230; and does not have the ambitions to build out crypto infrastructure for the whole ecosystem unlike Coinbase.”



And, at the same time, Coinbase has a brisk institutional business. Coinbase is the “first port of call” for many institutions, with 9,000 clients — among them are 10% of the top 100 hedge funds — and a custodian business for several of the highest profile names in crypto like the Grayscale Bitcoin Trust.&nbsp;



All this means that Coinbase commands a “much larger share of the regulated spot markets in the U.S. than is widely understood, as opposed to looking at the usual trading volume leaderboards,” Hayden Capital writes, citing Coinbase’s integration of industry-leading products and the extra effort it makes to work with regulators.&nbsp;



<h3 class="wp-block-heading">Regulatory moats still matter</h3>



Although some in the sector, like Singapore’s QCP Capital, <a href="https://cms.blockworks.co/qcp-capital-says-regulatory-catalysts-in-us-are-driving-crypto-volatility/" target="_blank" rel="noreferrer noopener">argue that the sizable premium</a> US regulatory licenses have historically commanded no longer matter as much given the emergence of a more hostile American regulator, Hayden Capital disagrees. 



Coinbase’s proactive regulatory approach, which began as early as 2013 when they sought money transmitter licenses from every state as well as registration from FinCen has built a trusted reputation for the company and has gone appreciated by regulators.&nbsp;



<h3 class="wp-block-heading">An alternative take: COIN is still a neutral buy</h3>



To be sure, the $50 billion in revenue projection from Hayden Capital is their ultra-bullish, but possible, take. The firm also presents a more conservative projection too, where crypto hits a market cap of $3.4 trillion, and Coinbase doubles revenues to $21.3 billion.



But do others even think that’s possible? Compass Point Research gives a less optimistic view of the company, choosing to place a neutral rating on its stock in a recent note published after Coinbase’s August earnings.&nbsp;



“Given the current trading environment and structural growth story in crypto, we see short-term momentum and believe COIN should trade at a premium to other structural stories under our coverage,” Compass Point wrote at the time. “But we have questions longer-term surrounding the sustainability of the current pricing model, ability to transition and grow non-trading revenues, and the regulatory environment, hence our Neutral rating.”



Coinbase closed the Monday trading day at $330.99, up 1% during the past week.

Hayden Capital: Coinbase Will Hit $50B in Revenue by 2025

Casey Wagner

<div id="highlights-block_60f07f0a73a76" class="highlights">
 <ul>
 <li>Goldman Sachs and Compass Point raise their expectations for Coinbase earnings in the second quarter </li>
 <li>The exchange is looking to offer different financial services to decrease the percentage of revenue currently coming from trading fees </li>
 </ul>
 
</div>



Goldman Sachs and <a href="https://www.compasspointllc.com/" target="_blank" rel="noreferrer noopener">Compass Point</a> are expecting Coinbase (ticker COIN) to exceed analyst expectations for second-quarter earnings, according to two reports released by the respective financial institutions. 



In a note to clients, Goldman Sachs analysts estimated that the cryptocurrency exchange’s earnings per share will come in 11% higher than expected. Compass Point researchers similarly increased their earnings per share projections from $2.57 to $2.90.&nbsp;



The Goldman Sachs note cited increased crypto volatility as a reason for higher trading volume and revenue, namely through trading fees, which have historically accounted for the majority of Coinbase’s revenue.&nbsp;



Compass Point researchers pointed out that Coinbase’s trading volumes experienced a surge in the beginning of the second quarter, but momentum has been slowing ever since. The firm is therefore lowering its 2021/2022 earnings per share estimates to $6.97/$3.20 from $9.28/$4.25, according to the report.&nbsp;



Compass Point estimates that COIN market share fell from 6.5% during the first quarter to 5.4% in the second quarter. The firm sees subscription and service revenue increasing in the coming months. 



The news comes shortly after Coinbase joined many crypto asset management companies and exchanges in offering <a href="https://cms.blockworks.co/coinbase-compound-labs-launch-usdc-high-yield-accounts/">high-yield accounts</a>. Coinbase customers can now earn 4% annually by lending out their USD Coin (USDC).&nbsp;



Coinbase’s account is not FDIC or SIPC-insured and offers less interest than many similar, competing accounts, such as Celsius and Nexo, which offer 13% and 12%, respectively.&nbsp;



The exchange also recently launched its bitcoin lending program, where clients can use their crypto holdings as collateral for loans. Qualifying users can receive up to $20,000 in credit with an interest rate of 8% for bitcoin-backed loans for contracts that are 12 months or less.



The new products come after Coinbase executives <a href="https://cms.blockworks.co/coinbase-q1-earnings-tripled-over-q4-but-still-missed-mark/" target="_blank" rel="noreferrer noopener">signaled</a> that transaction fees and trading volume will not be significant enough to support the exchange in the future. 



“We seek to operate the company at roughly break-even in terms of profitability, smoothed out over time, for the time being,” Coinbase said in its first-quarter financial results.



Coinbase is scheduled to release its second-quarter earnings on August 12.

Goldman Sachs, Compass Point Reveal High Q2 Expectations for Coinbase

<div id="highlights-block_60d25208df1aa" class="highlights">
 <ul>
 <li>Two of the major US miners are mining bitcoin at a considerable discount, according to research from Compass Point </li>
 <li>One stakeholder in the North American mining industry told Blockworks that he’s yet to see inbound movement to the US from fleeing Chinese miners</li>
 </ul>
 
</div>



The <a href="https://cms.blockworks.co/bitcoin-breaks-below-30000-on-china-concerns/" target="_blank" rel="noreferrer noopener">bitcoin price crash of 2021</a> won’t have the same impact on the mining industry as the crash of 2018 as two of the largest miners in North America are well-positioned to weather the storm.&nbsp;



According to a recent note by Compass Point’s Michael Del Grosso, the firm believes that Riot Blockchain (RIOT) is mining bitcoin at a cost equivalent to approximately $15,000 per bitcoin or a 62% discount to market pricing.



One of its competitors, Marathon Digital (MARA), is mining at a cost of approximately $12,000 per bitcoin, or a 70% discount.&nbsp;



“We believe North American miners are well-positioned to benefit both from the lower global hashrate and the potential for increased availability of mining equipment,” analyst Del Grosso wrote in the note. “In the case of Riot, the firm’s recent acquisition of Whinstone should provide the miner with significant hosting capacity ready to bring on Chinese miners looking to move their operations to North America.”



<h3 class="wp-block-heading">A buy rating for North American mining firms</h3>



The firm’s modelling that a prolonged decline in global hashrate — from operations in China packing up and moving abroad — as well as continued price compression is not an issue for either company given their scale. The longer that China’s collective hashrate declines means it&#8217;s easier for miners that are established and operating at full capacity to mine, and neither Riot nor Marathon are overly impacted by price sensitivity.&nbsp;



Compass Point gives both Riot and Marathon a buy rating. The firm also notes “should a <a href="https://cms.blockworks.co/sec-delays-approval-of-vaneck-bitcoin-etf-again/" target="_blank" rel="noreferrer noopener">Bitcoin ETF be approved</a>, Bitcoin miner stocks may experience a decoupling from the movement in Bitcoin price and potentially see more fundamentally-driven performance.”



This is in contrast to the price crash of 2018, where bitcoin mining companies spent a considerable amount of capital upgrading their capacity to capitalize on the bull market of 2017, which ended with the price of bitcoin falling by about 65% from January 6, 2018, to February 6, 2018.



At the time, <a href="https://news.bitcoin.com/miner-goes-bankrupt-manufacturers-stuck-with-inventory-old-rigs-sold-for-scraps/" target="_blank" rel="noreferrer noopener">mining rigs were being sold for scrap metal</a> by the kilo, some of the first US-based <a href="https://www.coindesk.com/bitcoin-mining-firm-giga-watt-declares-bankruptcy-owing-millions" target="_blank" rel="noreferrer noopener">bitcoin miners declared bankruptcy</a>, and Taiwan-based graphics cards manufacturers like Asus and Gigabyte were forced to take expensive write-downs as the market for GPU mining cratered.&nbsp;



<h3 class="wp-block-heading">Where are the Chinese miners?</h3>



Although there are a number of reports of miners from China fleeing to the US to re-establish their hashing presence, there’s no indication that they’ve set up shop stateside — only shipped the gear there.&nbsp;



Steve Braverman, president and CEO of Massena, New York-based Dignity Mining Group, told Blockworks that if these firms are going to establish operations in the US, it’s been “very quiet.”



&#8220;There has been very little movement regarding Chinese mining firms. Our colocation facilities are already maxed out,” he said. “There has been very little supply [of ASICs computer chips used by miners], and as you may be aware, most of the rigs come from China. The cost of the rigs has not gone down significantly either. If China miners are moving in, it is not to the US. There are many other friendly countries with low green power costs and are crypto-friendly.”



According to Blockchain.com’s <a href="https://www.blockchain.com/charts/hash-rate" target="_blank" rel="noreferrer noopener">hashrate monitoring</a> tool, the global hash rate has stopped its decline from the prolonged drop that began in early June, but it hasn&#8217;t yet increased. So wherever these miners are going, they’ve yet to turn on their machines.

North American Miners Get Buy Rating Despite Bitcoin Price Slump, Low Hashrate

<div id="highlights-block_60d0b35e4a343" class="highlights">
 <ul>
 <li>Compass Point Research and Trading projects Voyager to gain 1 million accounts, $11 billion in assets under management by end of 2022.</li>
 <li>Galaxy could see near-term losses but expected to capitalize as more institutions become interested in crypto </li>
 </ul>
 
</div>



Crypto trading app Voyager Digital is better positioned than some of its larger peers to attract users entering the market, while Galaxy Digital offers a unique investment opportunity as it seeks to institutionalize the digital asset space, according to recent notes by <a href="https://www.compasspointllc.com" target="_blank" rel="noreferrer noopener">Compass Point Research and Trading</a>.&nbsp;



Voyager’s zero-commission trading model, broad array of crypto trading pairs and large number of coins gives it a stronger value proposition than competitors like Coinbase, Square and PayPal, Compass Point senior analysts Michael Del Grosso and Chris Allen wrote in a June 20 research note.



“Overall, we believe that while competition may emerge in the long-run, the breadth of Voyager’s existing trading capabilities combined with the unique pricing model afford it a significant runway for growth over the near-term,” they said.&nbsp;



The company, which Compass Point rated as a buy, also has more than $100 million that it plans to spend on marketing to grow its user base. The earmarked funds come as Google earlier this month lifted its three-year policy that banned crypto exchanges and companies from using its advertising services.&nbsp;



Compass Point projects that its position in the crypto space and earmarked marketing spend could result in $1 million incremental funded accounts and drive $11 billion assets under management by the end of 2022.&nbsp;



“As with most crypto companies, we have a focused eye on DeFi — and specifically decentralized exchanges — although we believe in its current form Voyager is built primarily for the crypto naïve rather than the crypto native,” Del Gross and Allen noted. “We believe considerable greenfield opportunities exist to penetrate users and become their de facto onramp from fiat to crypto.”



Meanwhile Compass Point views Galaxy Digital, which it gave a neutral rating, as a “first-mover” in the crypto prime brokerage, trading, asset management, venture capital, investment banking and mining finance businesses.&nbsp;&nbsp;



<a href="https://cms.blockworks.co/goldman-sachs-teams-with-galaxy-to-meet-institutional-digital-asset-demand/" target="_blank" rel="noreferrer noopener">Goldman Sachs last week partnered with Galaxy</a>, naming the crypto firm the liquidity provider for its bitcoin futures block trades. Galaxy, serves as a market maker in over 90 digital assets and works with more than 300 institutional trading counterparties.



“We believe as more institutions look to get involved in crypto, Galaxy Digital will likely be their first call,” Del Grosso wrote in a separate note.&nbsp;



The news of the partnership with Goldman came after Galaxy announced the acquisitions of <a href="https://cms.blockworks.co/galaxy-acquires-vision-hill-says-sell-off-is-no-cause-for-concern/" target="_blank" rel="noreferrer noopener">Vision Hill</a> and <a href="https://cms.blockworks.co/galaxy-digital-acquires-bitgo-for-1-2b/" target="_blank" rel="noreferrer noopener">BitGo</a>.&nbsp;



The buy of Vision Hill helps the company provide institutional-grade crypto fund-of-funds and investment consulting solutions for allocators like pensions, endowments and foundations, while BitGo brings to Galaxy $40 billion in AUM and 400 institutional clients.&nbsp;&nbsp;



“Despite increasing adoption of digital assets and cryptocurrencies, legacy incumbents have limited infrastructure to service the unique technological demands of this asset class,” the June 20 Compass Note research note states. “&#8230;BitGo enables the widespread adoption of crypto through its leading position in custody, security, insurance and liquidity.”



The long-term prospects of the New York-based crypto firm could be dampened by possible near-term losses amid the recent sell-off, Del Grosso added. The price of bitcoin fell below $32,000 on Monday morning — a two-week low — as China continued its crackdown on crypto mining.&nbsp;