Bitcoin and other cryptos are leveling off. Miners are like games of value.

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The time of dreams

Bitcoin and other cryptos were trading higher on Tuesday, showing signs of stability after one of their longest losing streaks since 2018.

Bitcoin was costing around $ 42,900, up 2.8% in the past 24 hours. Ether, the second largest token, was $ 3,240, up 5.9%. Other major coins rallied including Solana, Cardano, Polkadot, Polygon, Avalanche, and Dogecoin.

The behavior of the rally depends on both macro and technical factors.

The macroeconomic landscape looks tougher as the Federal Reserve and other central banks prepare markets for higher interest rates this year. The Fed has indicated it will hike rates three times this year and may start reducing its balance sheet by $ 9 trillion.

This will create bigger hurdles for speculative assets like cryptos, which have benefited from excess liquidity and ultra-low rates. As the Fed tightens money supply and bond yields rise, less capital is likely to flow into more speculative assets, including cryptos.

The technical side of cryptography also seems wobbly. Bitcoin briefly broke through a support level at $ 40,000 on Monday, while Ether fell below the $ 3,000 support.

While both cryptos have rebounded a bit, some technical analysts are still not impressed. “Medium-term momentum remains on the downside,” said Katie Stockton, founder of crypto research firm Fairlead Strategies.

“Bitcoin and other cryptos are still in corrective mode, in the context of their long-term uptrends,” she said in an interview. “The oversold conditions have returned but have not yet given a better momentum. Until we see that momentum, we wouldn’t be better off adding exposure. “

Bitcoin’s next major support level is $ 37,400. If it gets down to that level, buyers are likely to step in, Stockton says. On the upside, resistance is $ 49,400 – its 50-day moving average – indicating that Bitcoin should break through that level for a sustained move higher.

While technical and macro factors don’t look good, some analysts see value in battered crypto stocks.

JP Morgan analyst Kenneth Worthington reiterated his support for the Coinbase Global crypto exchange (ticker: COIN) in a recent memo, for example, saying it’s “always a buy”.

“Use cases for crypto markets will continue to grow and new projects and tokens with more and different use cases will surface,” he writes. “With these projects attached to tokens and Coinbase a leading exchange for buying and selling tokens, we see Coinbase as the primary direct beneficiary of the growth of the crypto market.”

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Bitcoin miners, who process transactions on the network and receive Bitcoin as payment, have also been hammered, falling more than 40% since last November.

But major miners have raised capital and increased capacity to further capture the “hash rate” or overall computing power of the network. Miners with greater hashing capacity could, in theory, capture more Bitcoins distributed as payments for validating block transactions on the network.

“Even at $ 42,000, they can generate 85% gross margin,” said Christopher Brendler, analyst at DA Davidson, in an interview. “There are concerns about their ability to grow and raise capital, but they now have enough liquidity on their balance sheets, so the market is overreacting here. “

Brendler points out that Core Scientific has one of the lowest operating costs, at around $ 5,000 per token. Core plans to go public through a merger with Power & Digital Infrastructure Acquisition (XPDI), a specialist acquisition company. The stock is trading around $ 10 which is often a bottom for PSPCs.

Riot Blockchain (RIOT) has a mining cost of $ 13,000, Brendler estimates, while Marathon Digital Holdings (MARA) is around $ 7,000 to $ 8,000. He rates the three stocks as purchases.

“These companies are seeing their growth paid for and funded in 2022, and they have a lot of Bitcoin on their balance sheets, so these are very cheap stocks based on earnings and enterprise value versus EBITDA,” he said, referring to earnings before interest, taxes, depreciation and amortization.

Riot is trading at 10 times estimated adjusted earnings per share in 2022, Brendler notes, while Core is 8.2 times and Marathon 6.4 times. These assessments imply that the market is deeply skeptical that miners meet profit targets or that their profits will be sustainable.

Still, for investors who believe in Bitcoin’s long-term prospects, miners look like attractive high-value coins.

Write to Daren Fonda at [email protected]

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