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Analysts' Insights

Analysts' Insights

This Bitcoin Mining Stock might have +330% Upside.

This could be a precious insight note – pay attention and read on…

👇 1) Mining Bitcoin has become an ultra-competitive business, but massive upside convexity can be achieved once the price crosses the point where operational margins explode like any other business dependent on an underlying commodity. This might be the case here.

👇 2) As the Bitcoin Network Hashrate has climbed comfortably about 350m TH/s (last 382m), competition to mine coins has dramatically increased this year. Still, with Bitcoin prices above 30,000, we suspect that most Bitcoin miners have turned profitable, and turned on all their machines.

👇 3) In anticipation of the October Bitcoin rally, we wrote the report titled ‘Bitcoin Miners, the Ultimate Bet for 2024?’ published on September 28, 2023. Bitcoin was trading at 26,500 and is now an astonishing +30% higher.

👇 4) Astonishing – but not unexpected. (See our report ‘October Ignites a Bitcoin Boom: Institutions Fueling the Price Surge’ published September 20, 2023).

👇 5) The Bitcoin Miners report showed which miners (or listed crypto firms) showed the most upside.

👇 6) Our top pick was Canada-listed Galaxy Digital, trading at a -46% discount to fair vs. its statistically reliable relationship with Bitcoin. And while the shares are up +28% since we issued our report, our regression analysis suggested that prices should be up +139% if Bitcoin would trade back > 30,000. Hence, the shares might have more upside.

👇 7) Our report also revealed the implied all-in cost of mining from proprietary Hashrate for Q2 2023, which showed that Rio mines Bitcoins at 14,400, Bitdeer at 17,700, and Marathon at 24,000, while several miners were above 30,000.

👇 8) This Bitcoin mining stock might have a +330% upside.

👇 9) Bitdeer went IPO through a SPAC on April 12, 2023, at a $1.2bn valuation -70% lower than when the SPAC deal was first revealed in November 2021 – at the top of the fourth Bitcoin bull market. This was peak exuberance, or the Bitdeer founders identified the ideal selling time.

👇 10) Nevertheless, the listing went through in April this year at a much lower valuation. Bitcoin traded around 30,000 and -55% lower than its November 2021 peak.

👇 11) According to the Bitdeer SPAC prospectus, some shares could be sold immediately, while most had a lock-up period of six months (October). While the shares had their volatility when Bitcoin prices dropped by -20% into the summer before BlackRock announced their Bitcoin ETF intention, the Bitdeer shares have declined by -75% during the last month alone as – most likely – employees were cashing out as the lock-up period expired.

👇 12) Without having detailed knowledge about this, I would assume that those employees have significant exposure to various crypto ‘altcoins’ (which comes with being in the industry) and significant exposure to Bitcoin mining through employee shares. As those pre-IPO shares are likely up significantly, nobody can blame them for taking some profit.

👇 13) Unfortunately for those employees, there is not much liquidity, and with a market cap of just $300m, the shares only trade $1-2m per day; a $1m sell order has pushed the valuation to a potentially steep discount. Bitcoin is up +15% since the SPAC merged with Bitdeer in April, while the shares are down -70% and are trading at just $3.1 (from $10). A rally back to the April price of $10 would see Bitdeer shares rally by +330%.

👇 14) A quick comparison: Bitdeer mined 283 Bitcoins in May 2023, while Riot Platforms (the lowest cost producer) mined 676 – or 2.4x more. Bitdeer’s market cap is just $300m while Riot is $2.1bn – or 7x bigger. Bitdeer might have good potential here as the employee selling could be done, which would remove a major headwind.

👇 15) No doubt, Bitcoin mining is risky, and the shares of mining companies are highly volatile. Bitdeer is an affiliate company of Matrixport, but our research is known for unbiased and independent viewpoints. Bitdeer might be a good bet.

Wish me luck…

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