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Welcome to the On the Margin Newsletter, brought to you by Ben Strack and Casey Wagner. Here’s what you’ll find in today’s edition:

• Where the biggest bitcoin miners stand after their Q2 earnings reports. 

• Inflation seems to be cooling. Here’s why markets are still struggling. 

• Casey breaks down some new updates from crypto advocacy group Stand With Crypto.

Where bitcoin miners stand after Q2 disclosures

Bitcoin miners’ Q2 results have rolled in over the past few weeks, giving investors better clarity into where each stands in the post-halving environment.

April’s bitcoin halving helped send mining difficulty to a new peak and hash price — a measure of mining's revenue potential — lower than ever before.

BlocksBridge Consulting founder Nishant Sharma noted the best positioned companies in the segments (on a pure mining basis) are those with a low hash cost and a high hash rate realization rate.

“A lower hash cost implies the efficiency of the company’s mining machines is better than that of others, and/or the company has secured comparatively lower energy rates,” he told Blockworks. “Meanwhile, a higher hash rate realization rate implies the company is able to utilize most of its installed mining capacity.”

CleanSpark edged its biggest competitors with a lower hash cost in Q2, BlocksBridge Consulting data shows. Marathon Digital, meanwhile, was on the higher end of that metric.

As for having a high hash rate realization rate (a good thing), Bitdeer, Bitfarms and CleanSpark were the top three in July, respectively.  

Bitfarms unveiled some board director changes yesterday. Rival miner Riot Platforms upped its stake in Bitfarms to 18.9%, it said Tuesday, after offering to buy the company outright earlier this year. 

“We continue to believe BITF has underappreciated growth potential, and the acquisition interest offers downside protection in the stock,” Compass Point Research & Trading analyst Joe Flynn said in a research note.

Beyond just the mining-focused metrics, some mining stocks may be more attractive to investors for their BTC stockpiles, or as a bet on the growth of AI.

Flynn noted in an Aug. 2 note that Marathon was mining BTC at a loss. That said, the company bought $100 million worth of BTC in July as part of its new HODL strategy. It then said Monday it was raising $250 million via a private offering of convertible senior notes — the proceeds of which could be used to buy even more bitcoin.

Marathon is, for now, “a levered play on BTC,” Flynn added, similar to a MicroStrategy. He reiterated his buy rating of the stock, but cut his MARA price target from $27 to $21.

Then there are those moving toward high-performance computing (HPC) and/or AI to diversify revenue streams.

Core Scientific is “the best positioned pure play name for BTC miner to HPC conversion,” Flynn argued. After all, the company expanded its deal with CoreWeave last week to offer an additional 112 megawatts of infrastructure for HPC operations.

A smaller miner, Terawulf, noted in its July production report that it continues progress on a 2MW AI/HPC infrastructure proof-of-concept building. WULF shares are down more than 40% from a month ago, but has seen a lift since reporting Q2 earnings Monday.

“We believe the sell-off of the stock seen over the last few weeks provides [an] interesting opportunity with discounted option value on HPC,” Flynn said.

Then there’s Hut 8, which has multiple upside paths despite Q2 top- and bottom-line misses versus Wall Street estimates, according to Benchmark analyst Mark Palmer.

The company is set to benefit from bitcoin price appreciation given it held 9,102 BTC, as of June 30. Then there’s Hut 8 CEO Asher Genoot previously telling Blockworks the company would look to build out its HPC vertical to support AI applications.

“We believe HUT’s share price likely would receive a meaningful boost if it were to announce that it has signed a significant new AI partnership or that it had placed a large order for next-gen bitcoin mining rigs,” Palmer wrote in a Tuesday note.

The bottom line: With my reporting/newsletter duties, this busy, competitive mining industry is one I’m fine not being part of right now.

— Ben Strack

The rough value of Goldman Sachs’ spot bitcoin ETF holdings (as of the end of Q2), according to a Tuesday 13F filing. 

The financial giant reported owning seven BTC funds in all. The biggest such position was in BlackRock’s iShares Bitcoin Trust (IBIT), at about 7 million shares worth $239 million.

A company spokesperson did not return a request for comment on the nature of the holdings.

Crypto’s prominence within capital markets is growing day by day. 

The On The Margin Roundup crew will hit the stage at Permissionless III synthesizing crypto market conditions within the broader macroeconomic environment. 

It’s CPI day! 

US prices rose slightly less than anticipated in July, coming in at 2.9% annually versus the expected 3%, according to Wednesday’s CPI report. It’s the first time annual inflation has dipped below 3% since 2021. 

Month over month, prices increased as expected (0.2% in July). Food prices increased 0.2% from June to July, which was the same figure reported from May to June. Energy costs remained the same, and shelter costs increased 0.4% — compared to a 0.2% increase recorded in June. 

All in all, it was not a bad report. 

Even so, BTC and ETH initially dropped on the news. Bitcoin lost as much as 4% within two hours after the CPI print was published, while ether slid close to 5%, according to Coinbase data. As of 2 pm ET, bitcoin and ether were trading 3.4% and 2% lower, respectively, from 24 hours prior. 

US equities also stumbled at the open before paring losses later in the trading session. The S&P 500 slid as much as 0.5% in the first hour of trading before rallying. The index was up 0.1% over the session, as of 2 pm ET. 

The Nasdaq Composite lost more than 1% in the first hour after the open before moving slightly higher. The tech-heavy index was trading 0.3% lower at two hours before market close. 

What gives? 

The CPI report may have boosted odds of a September interest rate cut (currently at 60%, per CME). But even though it’s pretty clear inflation is easing, markets are now worried about why. 

If prices are only coming down because economic growth is cooling (a common pattern), markets will not react well in the long term, said Sevens Report Research founder Tom Essaye. 

“The bigger question is whether inflation is falling because growth is stalling,” he added. “If that is true, then falling inflation will turn from a tailwind to a headwind in the coming months, and you’ll likely hear a term from the past: deflation.” 

I know, I know — the good-news-is-bad-news narrative is a bit confusing. But bad news today would have almost certainly been a lot worse. 

Now we are left to hope the Fed can achieve its coveted soft landing.

— Casey Wagner

Nonprofit crypto advocacy group Stand With Crypto on Wednesday announced a new tour kicking off in September. The team will visit five battleground states: Arizona, Nevada, Michigan, Wisconsin and Pennsylvania. 

The purpose of the tour — dubbed “America Loves Crypto” — is to target the estimated 4 million crypto owners residing there, spokespeople from the nonprofit told reporters during a Wednesday morning call. 

Those crypto holders are split politically, Stand With Crypto says, with 44% identifying as Republicans and 39% as Democrats. 

When asked if a pro-crypto candidate has emerged during this presidential election season, Stand With Crypto execs were coy. 

“Obviously, Stand With Crypto is a 501(c)(4); we don't, you know, formally endorse one candidate or the other,” executive director Logan Dobson said. “One thing that we're really focused on is providing the research tools for folks to kind of make their own decisions on that.” 

The elephant on the Zoom call was that in May, Stand With Crypto launched a political action committee. You know, an organization that pools political contributions and donates these funds to candidates and/or groups? 

As a nonprofit, the PAC can only accept donations of up to $5,000 from its 440,000 members. The latest FEC filings show Stand With Crypto’s PAC had only acquired $13,690 — none of which has yet been disbursed to candidates. 

Stand With Crypto’s website, however, lists 21 Congressional candidates that it is endorsing. 

We’ll be following the money, so stay tuned for updates.

— Casey Wagner

• Japan's Prime Minister Fumio Kishida said Wednesday he would step down next month. The move comes after the BOJ unexpectedly raised interest rates last month, contributing to global stock market volatility. 

• Wisconsin’s investment board has sold its shares of the Grayscale Bitcoin Trust (GBTC), according to a recent filing, after it reported owning $64 million worth of the fund in Q1. Despite that, the state upped the number of shares it holds of BlackRock’s iShares Bitcoin Trust (IBIT) — from about 2.5 million in Q1 to 2.9 million in Q2. These shares were valued at about $99 million, as of June 30. A State of Wisconsin Investment Board representative declined to comment on the changes.  

• Crypto4Harris, a new, self-described grassroots movement, is hosting its first town hall Wednesday evening at 8 pm ET. Democratic Sen. Kristin Gillibrand is scheduled to speak.