Morgan Stanley Evaluates Bitcoin Miners: Favoring Cipher and TeraWulf, Cautions on Marathon
Table of Contents
You might want to know
- Why are infrastructure-like valuations being applied to certain bitcoin miners?
- How does Morgan Stanley's perspective differ for Marathon Digital?
Main Topic
Morgan Stanley has initiated coverage of three distinct bitcoin mining companies: Cipher Mining, TeraWulf, and Marathon Digital. The bank has rated Cipher Mining and TeraWulf as Overweight, attributing their business model to that of infrastructure assets, which typically involve long-term, stable cash flows. In contrast, Marathon Digital was given an Underweight rating due to its strategy focused more on bitcoin exposure rather than long-term leasing agreements for its data centers. This differentiation highlights Morgan Stanley's strategic preference for companies that promise stability analogous to infrastructure investments.
Stephen Byrd, a Morgan Stanley analyst, emphasized that Cipher's and TeraWulf’s operations should be akin to real estate investment trusts (REITs), drawing comparisons with data center REITs such as Equinix and Digital Realty. These firms command significant valuations, reflecting their scalability and stable cash flows. Byrd believes Cipher's transition to leasing toward cloud or large computing customers bestows similar characteristics to a toll road, delivering predictable cash inflows and diminishing reliance on bitcoin's volatile prices.
TeraWulf receives a similar evaluation, praised for its leadership expertise in power infrastructure and proven track record of data center agreements. Byrd projects potential growth wherein half to three-quarters of TeraWulf's infrastructure could evolve into non-bitcoin-centered data centers, a pathway promising more predictable, scalable returns.
Conversely, Morgan Stanley perceives Marathon Digital's approach less favorably due to its dual intent to both mine bitcoin and potentially repurpose data centers. This mixed strategy, alongside its efforts to leverage bitcoin price movements through convertible notes, suggests higher volatility and less consistent returns. Byrd accentuates the risks associated with Marathon's approach, underscoring how the erratic nature of bitcoin prices could compromise profitability substantially.
Key Insights Table
| Aspect | Description |
|---|---|
| Infrastructure Valuation | Cipher and TeraWulf assessed like REITs for stable cash flows, compared to Equinix/Digital Realty. |
| Marathon's Strategy | Dual focus on mining and data centers, risky due to bitcoin price fluctuations. |
Afterwards...
Looking forward, the role of bitcoin mining within the broader tech ecosystem might see substantial evolution. As wavering bitcoin prices inject uncertainty, miners may progressively adopt models akin to infrastructure investments, emphasizing steady returns characteristic of data center leasing. The evolution of miners toward becoming power and computing landlords could herald a new chapter where the intrinsic value of these facilities is decoupled from bitcoin's notorious volatility. Exploring avenues for integrating blockchain with traditional infrastructure could further redefine miners’ market value and industry position.