TLDR While owning Bitcoin miners could be an interesting non-linear play on Bitcoin during the violent phase of the bull market, there is no guarantee that they will outperform. This is shown by gold miners, who haven’t kept up with the gold price in recent years. Still, at current prices, Bitcoin miners seem like a decent bet.
There are currently six Bitcoin mining companies listed on the Nasdaq with a market cap of over 1 billion dollars.
- Marathon Digital Holdings (Ticker: MARA) – Market Cap: $5.6 billion
- CleanSpark (Ticker: CLSK) – Market Cap: $3.6 billion
- Riot Blockchain (Ticker: RIOT) – Market Cap: $2.8 billion
- Core Scientific (Ticker: CORZ) – Market Cap: $1.5 billion
- Cipher Mining (Ticker: CIFR) – Market Cap: $1.3 billion
- Terawulf (Ticker: WULF) – Market Cap: $1.1 billion
Maybe you caught the news in the previous two years of Core Scientific’s Chapter 11 bankruptcy process. The company filed for bankruptcy in December 2022 and has since exited bankruptcy, restructuring its debt and relisting its shares on Nasdaq.
This is just to show how brutal the industry can be and how risky it is to pick individual Bitcoin mining stocks. But ETFs come to the rescue, even in this nascent industry. An example is the VanEck Digital Transformation ETF (DAPP), which includes Bitcoin miners as part of its broader focus on digital transformation stocks. But the most prominent ETF is the Valkyrie Bitcoin Miners ETF (WGMI).
Here’s the chart of WGMI.
Since the major leg of the current bull market, starting in October 2023, WGMI is in a clear uptrend, doing a 4x since the bottom.
It’s currently pushing up against major resistance around $20.
Because WGMI has only existed for a little over two years, we want to zoom out by looking at individual Bitcoin miner stocks. As mentioned, Marathon Digital is the largest Bitcoin miner. How did it do in the previous crypto bull market? Here’s the 2020 chart on a log scale.
An insane almost 10.000% gain (a 100x) from Bitcoin halving in May 2020 to Bitcoin’s bull market peak in November 2021. Wow.
And here’s Riot Platforms, another big US miner.
A neat 40x from halving to bull peak … not too shabby.
Both these miners have massively outperformed BTC in the bull market. While BTC did roughly a 7.5 x from 2020 halving to 2021 bull market peak, these two miners did a 40x and a 100x.
How is this possible?
The Case for Bitcoin Miners
At first glance, it seems like a stupid idea to buy Bitcoin miners. These companies operate in a cut-throat business, competing in a truly global market, engaging in a race to the bottom to lower energy costs, mining a commodity (BTC) the issuance of which gets cut in half every four years! Who would want to own shares in that, let alone start such a business?
Yet there is a good argument for investing in these shares, especially around the start of a bull market. Namely, the expectation that the profitability of miners has a non-linear relationship with the price of Bitcoin.
This non-linearity (explosiveness when the BTC price reaches a certain point ) is not the same as leverage per se. While a leveraged bet adds a multiplier to a price rise, the non-linearity is to say that there’s a curve to the leverage. The explosiveness of Bitcoin miner shares will show up if and when the price…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
