Bitcoin mining has transformed from a simple, niche hobby into a fiercely competitive industrial sector where growth isn’t just beneficial — it’s essential for survival. In the Bitcoin ecosystem, which operates on a zero-sum principle, one miner’s gain directly translates to another’s loss. This dynamic creates an environment where only those who expand at attractive energy costs and efficient miners can sustain or increase their market share. Smaller miners, unable to scale effectively, often find themselves edged out, as demonstrated by Stronghold’s recent decision to look for sale options. In this new post halving era many more will follow suit. This trend underscores a harsh reality: in the Bitcoin mining world, large, well capitalised miners will continue to grow, while smaller players either consolidate or dissolve, their assets often sold off at a fraction of their original value.
Our analysis aims to evaluate the top Bitcoin miners, ranking them based on their growth prospects and gross margins. We focus on those who can potentially command a higher valuation premium due to their demonstrated and projected growth trajectories, as gathered from the unfolding earnings calls where management provides crucial forward guidance. We will provide full analysis of all top miners at the completion of the earnings.
Meanwhile lets zoom in on the most recent earnings from $RIOT and $CIFR as well as their growth guidance.
At first glance, both companies performed commendably on gross margins given that the average Bitcoin price hovered around $54K for the quarter. Cipher outperformed Riot, benefitting from lower energy costs at 2.7 cents per kWh compared to Riot’s 3.8 cents, and a significantly lower cost to mine Bitcoin at $11.9K versus Riot’s $23K. Cipher’s advantageous position is largely due to its energy contracts, which lock in low costs for about 96% of its expenses, providing a competitive edge for years. The ability to secure such low-cost energy contracts is crucial for sustainable mining operations, though difficult to achieve. Miners with access to affordable and reliable energy can not only excel during market upswings but also endure downturns by maintaining operations when others might cease, mining more Bitcoin at reduced costs. As Luxor’s Hashprice Index demonstrates, mining Revenues post halving are at multi year industry lows and miners with lowest cash cost on energy will be most protected in this environment.
Moving forward, gross margins are set to be a pivotal metric as cash becomes paramount in downturns, and non-cash accounting items become less relevant. Gross margin, reflecting the direct costs of producing Bitcoin — primarily energy costs which constitute up to 90% of mining expenses — is an essential indicator of a miner’s efficiency and market standing. In bear markets, the focus shifts towards maintaining low operational costs and ensuring high liquidity without significant debt burdens. Historical examples, such as the collapse of debt-laden $CORZ and the struggles of $MARA, $BITF, and $WULF, highlight the necessity of financial prudence.
Furthermore, other financial aspects like selling, general, and administrative expenses (SG&A) are high across the industry, with RIOT reporting SG&A at 73% of revenues compared to Cipher’s 39%. As we will see SGA, particularly stock compensation is high across the industry and although this does affect accounting profitability it has no effect on cash.
As the earnings season progresses, companies like $RIOT and $CIFR have not only shared results but also provided crucial forward guidance. As explained before, miner’s success hinges on growth, facilitated by access to capital and energy footprint. Cipher, with its $300 million ATM and planned gradual issuance, is well-positioned to fund its projected 226% growth to 25,1 Exahash over the next 18 months. Riot, with its $1,2 bln stash and $750 million ATM is in even better position for its 229% growth to 40,8 Exahash over the same period of time. One caveat is that vast majority of Cipher’s growth is targeted towards 2025 but we believe Cipher may surprise the market by exercising the 8 Exahash option from Bitmain and deploying the capacity by end of this year.
In conclusion, as we assess the post-earnings landscape, the leading Bitcoin miners should demonstrate:
- High Gross Margins or Cash Costs of Mining: Achieved through low energy costs and an efficient mining operation.
- Strong Liquidity and No Debt: Critical for supporting growth and weathering market downturns.
- Strategic Access to Capital: Essential for funding growth while minimising dilution.
Our ongoing analysis of the earnings reports and strategic outlooks aims to provide a comprehensive ranking based on gross margins, liquidity, and growth potential, helping us navigate the FUD and understand which companies are best positioned to thrive in the volatile Bitcoin mining sector. Lets wait for all the earnings and will summarise all miners in one go. Next up $CLSK and $MARA earnings tomorrow. We wish them good luck.
