The bank favours mining operators that offer the best relative value in light of their “existing hashrate, operational efficiency, power contracts, funded growth plans and liquidity”

The bitcoin mining industry is at a crucible moment, as the approval of a spot BTC exchange-traded fund could catalyze a rally against a backdrop of record hashrates and the impending block reward halving that threaten the industry’s revenues and profitability, JPMorgan (JPM) said in a research report Wednesday.

The bank favours mining operators that offer the best relative value in light of their “existing hashrate, operational efficiency, power contracts, funded growth plans and liquidity,” analysts Reginald Smith and Charles Pearce stated.

JPMorgan initiates coverage of CleanSpark with an overweight rating and a price target of $5.50; Marathon Digital at underweight with a $5 target; Riot Platforms at underweight with a $6.50 target, and Cipher Mining at neutral. The bank also upgraded Iris Energy to overweight from neutral.

The U.S. SEC has delayed its decision on whether or not to approve a spot bitcoin exchange-traded fund until this month. The crypto market is hopeful that any approval will trigger a rush of mainstream money into the sector.

CleanSpark is the bank’s top choice, offering the best balance of “scale, growth potential, power costs and relative value.”

The analysts said that Marathon is the biggest mining operator but has the highest energy costs and lowest margins. In the meantime, Riot has comparatively low power costs and liquidity but is the most expensive stock in their coverage universe.

Among the peers, Cipher Mining has the lowest power costs but is “growth constrained,” the report added.

The bank projects the four-year block reward opportunity at nearly $20 billion at current bitcoin prices. Nevertheless, the looming block reward halving, expected in Q2 2024, could affect profitability. It predicts that 20% of the network hashrate is at risk from halving as less efficient mining computers are decommissioned.