MicroStrategy initiated with Overweight rating as analyst initiates crypto miners As bitcoin, ethereum and other cryptocurrencies get increasing attention from investors, Wall Street and its traditional banks continue to adjust to the shift. Catch up on this week's top stories highlighting the intersection of these old guard and new school areas of finance with this recap compiled by The Fly.
RIOT URGES CHANGE FOR BITFARMS BOARD: Riot Platforms (RIOT) issued an open letter on Tuesday to Bitfarms (BITF) shareholders. The company wrote, in part, "Our focus remains on fixing Bitfarms' broken governance to enhance value for all shareholders. In order to achieve this objective, additional fresh perspectives are required in Bitfarms' boardroom. Since we initiated our campaign, two of Bitfarms' three co-founders, Emiliano Grodzki and Nicolas Bonta, have resigned from the Bitfarms Board. Notably, Mr. Grodzki only resigned after shareholders voted not to re-elect him by a significant margin at Bitfarms' May 31, 2024 annual and special meeting of shareholders. Bitfarms subsequently appointed Fanny Philip to replace Mr. Grodzki, appointed Ben Gagnon as EO and a member of the Bitfarms Board to replace Mr. Bonta and made other executive leadership changes. While these changes represent a step in the right direction, they have been reactive and insufficient to address Bitfarms' broken governance. These actions followed Riot's sustained public pressure and would not have occurred had Riot not challenged the entrenchment of the Bitfarms Board. The evidence is clear: Bitfarms needs additional truly independent directors with the experience and expertise to ensure that decisions about the company's strategy moving forward reflect what is best for all shareholders – not just what is best for legacy directors whose focus is maintaining their own positions."
Bitfarms issued a Wednesday statement in response, which read in part, "The upcoming special meeting is not about corporate governance, as Riot has repeatedly positioned it to be, but rather about Riot attempting to acquire Bitfarms at a discounted price for the benefit of Riot shareholders, not Bitfarms shareholders. Riot has declined to engage with us constructively – including by refusing to enter into a standard non-disclosure agreement with Bitfarms or put forth a revised proposal for our consideration – and has instead taken to public attacks and actions to harm the interests of other Bitfarms shareholders. The recent Board and leadership changes that Bitfarms has implemented were made independently of Riot, on behalf of all of our shareholders, to ensure the right team is in place to enhance shareholder value at Bitfarms, not for Riot's benefit and approval. The Bitfarms team is best-in-class, comprising the right mix of skills and experience to effectively oversee the Company's strategic plan. On the contrary, it is not clear how Riot's nominees could enhance the Board. Our recent proposed acquisition of Stronghold (SDIG) is consistent with our strategy to diversify our access to power and also rebalances our energy portfolio towards the U.S. Through this transaction, we will leverage our operational expertise and proprietary data analytics system to build on Stronghold's capabilities and further optimize its sites to advance the combined company's position in the marketplace."
MICROSTRATEGY INITIATED WITH OVERWEIGHT: Barclays initiated coverage of MicroStrategy (MSTR) on Friday with an Overweight rating and $146 price target. The company's strategy to convert a "sticky" enterprise software business into a bitcoin accumulation vehicle is "unique and differentiated," the analyst said. For public company investors looking for bitcoin exposure, Barclays sees MicroStrategy "as the best strategy available." The firm said the company is "spinning software into digital gold."
ANALYST INITIATES MINERS: Needham initiated coverage of Iris Energy (IREN) on Wednesday with a Hold rating and no price target. While the firm finds the company's bitcoin mining operations "fairly attractive with industry leading fleet efficiency," it does not get the sense Iris has near-to-medium term high-performance compute opportunities. As such, the analyst sees a balanced risk/reward for the shares given Iris Energy's "quality mining operations but limited upside potential in areas beyond mining."
Needham also initiated coverage of TeraWulf (WULF) with a Buy rating and $6 price target. The analyst believes TeraWulf will be early to market in bringing a 100MW-plus site online for high-performance compute. Additionally, the firm expects lower capex versus peers, saying TeraWulf's sites are more suitable for near term HPC designs. Needham thinks HPC will be a fast growing, attractive and stable margin business for miners that have available power capacity. It forecasts the company will generate $610M in revenue in 2026, with $350M coming from HPC.
Additionally, Needham initiated coverage of Core Scientific (CORZ) with a Buy rating and $16 price target. Core is the first mover among bitcoin miners in what will be a fast growing, high demand environment for high-performance compute data center capacity, the analyst said. The firm expects the company to be first to market with a 100MW-plus site, positioning it as "The Early Mover" in retrofitting mining sites to high-performance compute. Needham believes the company's first customer agreement with CoreWeave is a unique deal among peers and offers attractive economics and terms. It estimates $500M in annualized revenue in 2026 and $400M in gross profit from the HPC contribution.
Meanwhile, Ladenburg raised the firm's price target on Core Scientific on Thursday to $15 from $14.50 and kept a Buy rating on the shares. After emerging from bankruptcy in late January, Core Scientific reported "surprisingly strong" Q2 results, said the analyst, who is revising the firm's earnings models for 2024 and 2025 to account for the results from Q2 and management's comments.
ANALYST UPGRADES COINBASE: Barclays upgraded Coinbase (COIN) on Friday to Equal Weight from Underweight with a price target of $169, down from $206. Over the past year, the business models at both Coinbase and Robinhood (HOOD) have matured and while risks remain for both models, there are also potential sales catalysts from new products and regulation, the analyst said. The firm said valuations are also "starting to look more sensible for both names." Barclays believes both companies have "matured meaningfully" in terms of expanding their respective product sets and improving profits via cost rationality and sales improvement. As a result, the firm sees the risk/reward for both stocks as more balanced.
CALIFORNIA AG SETTLES WITH ROBINHOOD CRYPTO: California Attorney General Rob Bonta announced Wednesday a $3.9M settlement with cryptocurrency trading platform Robinhood Crypto, for failing to allow customers to withdraw their cryptocurrency from their Robinhood accounts from 2018 to 2022, and for failing to fully disclose aspects of its trading and order handling arrangements. The settlement resolves the investigation into Robinhood's violation of the California Commodities Law and includes a $3.9M penalty and strong conduct requirements.
"While cryptocurrency is fairly new, California has strong and enduring consumer protection laws that protect Californians against misrepresentation, including by cryptocurrency companies," said Attorney General Bonta. "Our investigation and settlement with Robinhood should send a strong message: Whether you're a brick-and-mortar store or a cryptocurrency company, you must adhere to California's consumer and investor protection laws. I am dedicated to using all the tools available to my office to protect California consumers in the face of advancing technology in the marketplace."
CRYPTO STOCK PLAYS: Publicly traded companies in the space include Bit Digital (BTBT), Coinbase, Core Scientific, Greenidge Generation (GREE), Marathon Digital (MARA), MicroStrategy, Riot Platforms, Stronghold Digital Mining and TeraWulf.
PRICE ACTION: As of time of writing, bitcoin dropped about 4% this week to $56,653 in U.S. dollars, according to CoinDesk.
