Bitcoin jumps to $63,000, but JPMorgan says the crypto could decline post-halving: CNBC Crypto World

Today, Bitcoin bounces back. After briefly sliding below $60,000, JP Morgan says the upcoming halving could lead to losses for Bitcoin, and Tadas Kulic of Sunnyside Digital explains how the wholesaler of mining hardware is preparing for the upcoming halving. Welcome to CNB CS Crypto World. I’m Tanaya Mckeel. Crypto prices in the green today One day after Bitcoin sank to the $59,000 level. As of noon, Eastern Bitcoin bounced back above $63,000, climbing more than 5% in the past 24 hours. Ether climbed back above $3000 and Uniswap jumped more than 7% to nearly $8. OK, let’s talk about the top stories. JP Morgan says Bitcoin could be headed lower after the having event later this week and a report out this morning. The bank’s Global Market Strategy team said that unlike past having events which have kick started previous bull markets, this having is quote already priced in. This time at JPM strategist said they expect Bitcoin to slide, citing overbought conditions, prices still well above the bank’s comparison to gold and subdued venture capital funding. New research put out this morning from Deutsche Bank also says not to expect a post having Bitcoin rally, adding that miners are expected to shift locations after the event. The report said miners could look for cheaper sources of energy after mining rewards get cut in half, and they could find that in Latin America, Asia, Africa and the Middle East. Right now, the US accounts for 40% of all mining activity. Next, a jury is deciding whether a crypto trader defrauded mango markets out of millions of dollars. Avi Eisenberg was arrested back in December 2022 and charged with fraud and commodities manipulation over trades that netted him over $110 million. Prosecutors argue that Eisenberg manipulated the price of the Mango token, while his defense says he used his own money to make legal trades. At the same time, though, Eisenberg reportedly searched terms around the statute of limitations for market manipulation and the rules of extradition from Israel, which he reportedly fled to after his identity was revealed. As of noon Eastern, the jury hadn’t come back with a verdict. If convicted, Eisenberg faces up to 20 years in prison. All right, let’s go back to the halving for our main story. Crypto World’s Talia Kaplan spoke with Sadaz Kulick, CEO of Sunnyside Digital, about the upcoming halving and how the distributor of mining hardware and data center equipment is preparing the Bitcoin Halving is fast approaching. Sunnyside Digital is a mining infrastructure provider. So I’m curious to get your take on how the key technical event will impact miners. Now, I recently put together a report on the implications on miners and many say they expect consolidation following the halving. I know that you believe there will be a surge in M&A activity within the mining sector this year and next. Why do you think that is? Yeah. I think as the industry matures and we face the economic headwinds of the halving, I think scale is going to matter, efficiency is going to matter. And candidly, as we’re becoming a much more understood sector, free cash flow and profitability is going to matter. It’s not going to be a battle for growth at all costs as we’ve seen to date. I think traditional financial metrics will certainly be much more important for the entire sector. And through that, you’ll see the traditional things that industries do as they mature, as they typically consolidate, where you go from 50 different companies that are in the space down to call it 10 to 20 much larger companies. And I think that’s important for investors to know because that will certainly drive net income, free cash flow and EBITDA, which is likely the three most important metrics for mature companies for an investor to be looking at. The CEOs of publicly traded mining companies we spoke with believe we will see consolidation somewhere between 15 and 30% post having. Do you think that’s a realistic range? I think that’s a very realistic range. I mean, we’ve seen recent consolidation with companies like Huday and USBTC Cathedra and the infrastructure company that recently did an RTO. There’s certainly many more rumours in this in the market about additional consolidation. I mean, both Marathon, Cleanspark, two of the largest publicly traded miners have been very vocal about their appetite for acquisition, hunting for new assets. So I think 15 to 30% is very reasonable and conservative for folks to be looking at the space to anticipate on the secondary side of the market where you have solutions and infrastructure provider companies like Sunnyside Digital. I think that will also be a theme over the next, call it three to four quarters post having. And the reason being is if you’re a large publicly traded miner, you don’t want to be dealing with a mom and pop shop of five to 10 people on a company to be able to provide you services and solutions for the scale that you’re actually operating. Now companies like Core, Marathon, Cleanspark, they’re approaching management of almost a GW of power and to actually manage that and provide services for that, you need to be at scale. And so Sunnyside Digital and other folks in the services sector supporting large scale data center miners, we’ll certainly need to consolidate to be able to provide a the the, the cost of capital to really be helpful to the large scale miners, but also just the breadth of services that they need to be efficient in generating hash rate for the market. Why do you think the upcoming having might defer from past havings and why do you believe it could spark increased institutional interest in Bitcoin? Well, the upcoming halving I think is unique in that we’re actually seeing an incredible amount of development on Bitcoin, the network itself. From a protocol perspective, what that means is typically people have been thinking of Ethereum, Selena and all sorts of other call it base one layer protocols as the place where you can develop smart contract. What we’re now seeing is the development community has shown that Bitcoin as a protocol itself can be the substrate or layer one for smart contract technology for ordinals, which are a type of NFT runes which will actually create a totally new opportunity and use case for the Bitcoin network. So what that means fundamentally is driving real transaction fees to the Bitcoin network, which ultimately will be supportive of Bitcoin miners, but more importantly be much more interesting for the developer community to build on top of. So that is certainly something that has never happened before. The innovations have been happening so fast and we’ve actually seen days where transaction fees have surpassed the block reward, which is what everybody’s focused on with the halving. So that’s a key component that people really need to understand is that as transaction fees surpass the block reward, which is what is impacted by the halving the Bitcoin network itself and mining as a business becomes much more economically sustainable into the future. Now you touched on this, but in a nutshell, how will the upcoming having affect your business given you are a mining infrastructure provider and how have you been preparing, right? That’s a great question. We’ve actually been working with most of the publicly traded miners to help them with what we call the fleet refresh program as some of the equipment that they’ve been using for the past two to three years becomes not necessarily obsolete, but not as efficient as the new generation coming out. We’re actually working with them to be able to take the computer servers off rack, plug in the new equipment, clean the old equipment, diagnose it, make sure it’s actually in great operational condition and then sell it into the secondary market. Typically into jurisdictions where cost of power is much lower than in North America, but where they can actually use these machines into the foreseeable future. Whereas the, you know, public miners like to have the newest and most efficient hardware being plugged in. So that’s been a huge amount of our business and we’re really fortunate to be working with some of the big public companies to help them with that. And we should have some news in the near term with some of the public players around this type of program that we’ve launched. And hopefully you’ll come back on Crypto World and you’ll let us know that news when the time comes. Love to thank you. But before founding Sunnyside Digital, you served in several senior positions within the digital mining sector. That includes a role as Senior Vice President of Growth at Core Scientific, which of course filed for Chapter 11 bankruptcy back in December 2022. What was your reaction to that bankruptcy? And what did you learn from your time in these roles that ultimately helped you shape your current business? And what did you learn from these bankruptcies, especially in the lead up to the halving great questions. I’ll try to take them on one at a time. The key learning I learned from the core Chapter 11 filing is really about risk management and treasury management. Make sure that you’re not betting the house if you’re over leveraged and making sure you have the ability to pay down your your debt when you need to. And I think the sector itself has has had that very difficult lesson learned now because core Scientific wasn’t the only one you saw block Fi, Celsius compute N numerous large scale data center operators were over leveraged, made promises they couldn’t keep and unfortunately went through very structured solvency processes. And and what we’ve seen with core Scientific is that they’ve actually emerged as a stronger, better company. And I’m very long on core scientific to be honest, not just because I was a former employee, but Adam Sullivan’s done a great job in turning that ship around and it’s it’s certainly an undervalued play in the market today in my opinion. What what we’ve actually applied from Sunnyside Digital perspective is that at the end of the day, even if there’s a distressed asset, they need a trusted, reliable partner to help them with asset disposition or asset procurement at the end of the day when they’re in a better position. So we were actually very fortunate to be able to work on several of these solvency cases to help the committees that were formed sell assets into the market to be able to get the cash back to then pay down the debt. So we chop wood every day is the way I look at it. We’re not looking to make, you know, the biggest dollars and the biggest deals. We’re looking to be consistent, reliable partner for the large data center operator so that if they ever have a phone call, they know they can call me, my team and get the answer that they need and get the job done. OK? That’s all for Crypto World today. We’ll be back again tomorrow and we’ll see you then.