According to Fundstrat, Bitcoin mining stocks have generated far greater returns than bitcoin cryptocurrency, even though its recent bull market has shown considerable gains.
However, even as bitcoin miners rush to share in these riches, the gains in the mining market could still be “the most high-risk bitcoin bet of all,” according to Leeor Shimron, Fundstrat’s vice president of digital asset strategy.
Most mining companies are fairly young and “lack track records.” They have also been operating at a loss, Shimron says, yet have still reached over $1 billion in market cap, mostly because during the downturn in BTC’s price, they invested in the hardware and facilities that helped them to “strike it big” in the current bitcoin bull market cycle.
Shimron told investors enquiring about the mining stocks that whilst the stocks were surging, they remain a “high beta play”, given that BTC is up 900% in this last bull run, but the average return among the biggest publicly traded miners was 5,000%, according to his analysis.
We all know that mining bitcoin burns up electricity. To cover this expense, miners sell the mined bitcoin, holding onto some of the BTC on their corporate balance sheet. For example, the North American mining company, Marathon Digital Holdings, recently announced it had purchased an additional $150 million worth of BTC to hold on its balance sheet.
Shimron’s analysis of the largest publicly listed mining companies, including Marathon, showed that the beta these bitcoin mining companies exhibit generates a return of 2.5% for every 1% move in the cryptocurrency. He also said that the miners’ performance is clearly tied to the price of bitcoin, and that as its price increases, “miners spin up new rigs or upgrade their hardware with more powerful and efficient machines.” This is why they have been able to attract investor interest in places such as the WallStreetBets message board on Reddit, which fuelled the mania in shares of GameStop.
Shimron said in a CNBC interview: “For investors looking to gain exposure to miners, that beta makes it a great opportunity during the middle of a roaring bull market. …There are fits and starts and pullbacks, but we still have lots of room to grow here.”
All this interest has been encouraged by bitcoin’s own bull market, which Shimron believes will continue in 2021. Inflation fears are driving the BTC price and whilst yield pressure from the 10-year Treasury could cause a downturn, Shimron says “it is clear from Fed signalling that the central bank wants to keep its dovish policies in place until 2023,” which will help bitcoin. Younger investors are also playing a role. “You see younger people gravitate to bitcoin and other digital currencies as opposed to gold and commodities and it speaks to a demographic shift. … To them it’s not crazy to interact with money in a purely digital way,” Shimron said.
But here is his final advice on investing in bitcoin miners: he said he is “inclined to trade the bitcoin miners in a bull market run, rather than see them as investments to hold for the long-term.” Bitcoin on the other hand is for him a long-term investment.