- Funding financial institution Cowen is leaping head-first into crypto with the launch of bitcoin miner protection.
- Lead analyst Stephen Glagola breaks down the bull case for miners, even in bearish environments.
- He explains his thesis behind his 2 high picks, which have 85% and 151% upside, respectively.
Funding financial institution Cowen is understood for its deal with disruption, with deep dives into themes which are reworking sectors from retail, to transportation and funds.
In 2021, the cryptocurrency area actually established itself as a disruptor, capturing the eye of buyers and analysts with the outstanding returns from the belongings and the thrill created round decentralized subjects like central financial institution digital currencies, decentralized finance, NFTs and the metaverse.
Cowen’s already been on the forefront of the cryptocurrency area in some ways, serving to bitcoin mining companies go public, leading financing for crypto startups and covering crypto within their Washington research group.
This 12 months, they’ve upped the ante with the launch of their very own protection of the bitcoin mining sector.
“It is a new area, nascent trade,” Stephen Glagola mentioned. Glagola is Cowen’s fairness analysis analyst for cryptocurrencies and digital belongings. “Loads of schooling and work nonetheless must be carried out by way of simply getting everybody on the institutional aspect in control on bitcoin mining and cryptocurrency typically,” he mentioned.
“I’d say bitcoin mining is the beginning of broader protection for Cowen,” he added.
Glagola spent over eight years masking the media and leisure sectors and offering shares suggestions on the likes of DraftKings and LiveNation. He was additionally featured in Insider’s 2021 listing of rising stars in equity research.
Bitcoin is a totally completely different enterprise mannequin, Glagola mentioned. He is spent virtually each waking hour of the previous few months getting in control on the enterprise mannequin.
“I’d say I characterize the bitcoin mining trade as a commodity enterprise on the finish of the day, with a brand new expertise wrapped round a brand new expertise,” Glagola mentioned.
However Glagola would not need to be making a broad name on the commodity itself. As a substitute he is targeted on the micro company-specific elements that can drive these companies over the following 12 to 24 months.
“I actually wished to deal with actually enlightening buyers on the economics of those companies, and simply actually hone in on the mining economics,” Glagola mentioned.
Bitcoin’s worth is set by provide and demand, Glagola mentioned. It is unimaginable to worth it utilizing a basic discounted money movement mannequin, as a result of there is no such thing as a money movement.
“We all know the availability curve is fastened, we all know the manufacturing schedule of bitcoin,” Glagola mentioned. “The worth is basically going to return from the demand curve, which is variable.”
The bull case for miners
The lack of knowledge concerning the microeconomics of miners and the significance of the availability and demand curve means buyers are underappreciating miners as an funding alternative, in response to Glagola.
Miners which have price management and manufacturing scale can present uneven upside to risky bitcoin costs, he mentioned.
If bitcoin costs fall, the least environment friendly merchandise on the community fall off, absorbing the decline.
The miners that proceed to function will profit from a lowering price of manufacturing, which creates some draw back safety, Glagola mentioned. This lowering price of manufacturing might come from a fall in hash fee, or downward problem changes.
“Probably the most environment friendly producers truly can keep pretty wholesome margins, even on a decline within the bitcoin worth,” Glagola.
Lots of the most effective producers are the listed US public corporations, Glagola mentioned.
“The least environment friendly producers will take that hit initially if the value have been to see any sort of serious drawdown,” Glagola mentioned.
Alternatively, if bitcoin is rising, miners expertise leveraged upside. It is because bitcoins are being produced at a a lot decrease price than the spot fee, Glagola mentioned.
There’s an upside profit from already working at scale, he added.
Risky market environments
Bitcoin miners seem effectively positioned for this present market setting and might supply buyers the chance to climate a few of bitcoin’s
Since hitting an all-time excessive of $68,789 in November, bitcoin has fallen by 39% and is currently trading around $41,800 – its lowest in a number of months.
Bitcoin mining shares can function with very wholesome margins even when bitcoin trades within the vary of $30,000 to $40,000 because of the present price of manufacturing, Glagola mentioned.
The problem presently is that mining firm inventory costs nonetheless stay closely correlated to the worth of bitcoin itself, he added.
“What I’ve seen in my correlation evaluation is that the extra bitcoin held on the stability sheet, the next share of your
, the upper correlation there tends to be with the inventory,” Glagola mentioned.
Nevertheless, this correlation would not take away from the companies with sturdy fundamentals.
Beneath-the-radar mining performs
Glagola sees these sturdy fundamentals in corporations, equivalent to Stronghold Digital Mining and Iris Power. These are additionally two corporations that Cowen helped take public.
They’re each execution tales, Glagola mentioned.
“We have now confidence in each administration groups at each corporations,” Glagola mentioned. “However it actually is that each are being [discounted] due to larger perceived execution danger and I feel it is actually only a matter of each the administration groups executing on their plans that they’ve laid out to buyers over the following 12 months.”