One of Bitcoin’s (BTC) most appealing features for investors is its fixed supply. Only 21 million coins will ever exist, encoded in the software, most of which have already been mined.
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This makes the asset scarce and naturally gives it value, but according to B. Riley analyst Lucas Pipes, the remaining supply of 2.03 million represents to bitcoin miners a bit of a “conundrum.” It presents questions regarding the ultimate size of the industry and opportunity in the digital mining space.
Ultimately, Pipes believes that for “long-term differentiation and value creation,” those that want to remain relevant in the industry are those who focus on “economies of scope.”
Right now, investors might be keenly aware of BTC’s inherent value, but Pipes thinks many have reservations regarding the “seeming lack of differentiation in the digital asset mining industry.” I.e., how to tell one digital miner apart from the other?
And here Pipes thinks investors will start to notice the difference in 2022, with those targeting the aforementioned “economies of scope,” set to benefit the most. What are these economies of scope, then? It is the “use of assets or know-how for one economic activity, for the pursuit of another.”
Take Starbucks selling wine, for instance, or cargo being transported at the base of a plane by passenger airlines.
Thinking along these lines with regards to miners, those that can combine “datacenter management and intermittent power management,” will reap the rewards.
What kind of companies are we talking about, then? Stronghold Mining (SDIG) is one, using power for both digital mining and open market electricity sales. Another is Hut 8 (HUT), whose datacenters are used both for digital mining and cloud computing. There’s a big opportunity for Core Scientific (CORZ) too, which via its extensive hosting business can pursue economies of scope in datacenter management. Riot Blockchain (RIOT) is another; by actively handling power use based on the Electric Reliability Council of Texas’ (ERCOT) supply and demand, the BTC miner is “expanding” its Rockdale datacenter.
“In short,” Pipes summed up, “While we estimate that miners on the whole are undervalued, we see the greatest opportunities in the industry today with companies that can offer investors both scale and scope to the growing markets of digital assets and infrastructure.”
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
