DA Davison, a Wall Street investment bank, has downgraded Core Scientific (CORZ) and Argo Blockchain (ARBK) from buy to neutral.
Chris Brendler, an analyst, highlighted that crypto winter continues to weigh heavily on the profitability of the miners. He said inflation and rising pessimism around interest rates have pushed back the eagerly anticipated Federal Reserve interest rate pivot. Brendler believes is now clear that less advantaged miners are already starting to run out of time. But the analyst is positive about Bitcoin’s long-term potential. However, he is pulling the plug for now on miners as higher power costs, increasing network competition and debt burdens have further strained profitability and liquidity. Brendler was earlier optimistic about miners. He had predicted that lower Bitcoin prices and higher costs would eradicate competition and lower the network hashrate. But this didn’t come to be as both network difficulty and hashrate are now near all-time highs.
The evolving bear market has been very much tough on the Bitcoin mining sector which saw the shares of publicly traded Bitcoin miners dive by more than 70% this year. Argo, in particular, was forced to raise $27 million to overcome liquidity pressures while Compute North had to file for bankruptcy. But there are some companies like Riot Blockchain and Marathon Digital that have low-cost power. Both have funded growth plans and enough liquidity to capitalize on the impending shakeout.
Brendler pointed out that decision to downgrade Core Scientific was not easy as the firm is best-in-class in many ways. The firm now faces multiple acute challenges and has a significantly more stressed liquidity position than expected.