Bitcoin miner Core Scientific (CORZ) and Argo Blockchain (ARBK) were downgraded from buy to neutral by Wall Street investment bank DA Davison as crypto winter continues to weigh heavily on the profitability of the miners, analyst Chris Brendler wrote in a note Friday.
“Persistent inflation and rising pessimism around interest rates have pushed back the eagerly-anticipated Fed pivot and it’s now clear that less advantaged miners are already starting to run out of time,” Brendler wrote. Brendler added that he is still positive on bitcoin’s long-term potential but he is “pulling the plug” for now on the miners as higher power costs, increasing network competition and debt burdens have further strained profitability and liquidity.
Previously, Brendler was optimistic about the miners as he predicted that lower bitcoin prices and higher costs would weed out the competition and lower the network hashrate. However, that didn’t play out as both network difficulty and hashrate are now near all-time highs.
The ongoing bear market has been particularly tough on the bitcoin mining sector, which saw the shares of publicly traded bitcoin miners fall more than 70% this year, on average, according to FactSet data. Most recently, Argo was forced to raise $27 million to ease liquidity pressures, while one of the largest mining data center providers, Compute North, filed for bankruptcy.
Amid this backdrop, two of the largest miners, Riot Blockchain (RIOT) and Marathon Digital (MARA), are Brendler’s top picks as “as both have low-cost power, funded growth plans, and ample liquidity to capitalize on the impending shakeout.”
Brendler noted that the decision to downgrade Core Scientific wasn’t an easy one since he still sees it as “best-in-class in many ways,” echoing Barclays’ analyst who called the company a “best-in-class, leveraged play on the crypto ecosystem” earlier this month.
However, Brendler said that Core Scientific now faces “multiple acute challenges” and his recent industry checks suggest that the company has “a significantly more stressed liquidity position than expected.”