So Far, Bitcoin ETFs Are a Blessing, Not a Curse, for Mining Stocks

The spot bitcoin
BTC
exchange-traded funds (ETFs) that went live this January have been advantageous for Bitcoin mining stocks, not detrimental as some analysts have predicted.

Since launching on January 10, 2024, ten spot bitcoin ETFs have achieved a collective AUM of more than $36 billion, an eye-popping level of inflows that have made bitcoin’s ETF debut perhaps the most impressive in ETF history. On the back of this activity, bitcoin hit $50,000 this week for the first time since December 2021.

What’s good for bitcoin is good for publicly traded bitcoin miners. Out of the 12 largest public bitcoin miners by market capitalization, nine have posted double-digit gains over the past month, and all but four have increased in price more than bitcoin itself.

These stocks saw a brief sell-off immediately following the wave of Bitcoin ETF launches, but this was largely in response to bitcoin’s own price receding in the wake of the event as investors “sold the news,” not because the bitcoin ETFs were eating into the marketshares of these stocks, an outcome that some market commentators suggested as a possibility.

Bitcoin Mining Stocks Are More Than Alternative Exposure to Bitcoin — They Are High Beta Trades

Many analysts and commentators have posited that, because bitcoin ETFs give investors direct exposure to bitcoin, these investment vehicles would eat into the marketshare of publicly traded bitcoin miners, which provide indirect exposure to bitcoin.

This supposition seems sensible on its face, but it ignores the fact that most investors don’t treat bitcoin mining stocks purely as investments for bitcoin exposure — they primarily treat them as high beta plays on bitcoin’s price.

The charts featured in the prior section demonstrate this. In general, when bitcoin pumps, bitcoin mining stocks pump higher, and when bitcoin dumps, they dump harder. In this way, bitcoin mining stocks are similar to their analogs in the realm of gold and silver mining stocks, as both are treated as highly levered trades in relation to the underlying commodities they produce.

Gold miners have fulfilled a role as a levered trade on gold’s price even after the first spot gold ETF was introduced in 2004, so it’s reasonable to expect that bitcoin mining stocks will continue to play this role, as well.

Will Bitcoin Mining Stock Investors Price In the Halving?

Bitcoin’s price, however, is not the only important factor for evaluating bitcoin miners. Investors also need to look at how much bitcoin a public miner can reasonably produce.

The operations of public bitcoin miners differ in many ways from gold miners, and one of the biggest differences stems from a foreknown, quadrennial supply shock called the Halving.

Every four years, Bitcoin’s block subsidy (the number of newly-minted bitcoin that miners extract from each block) is cut in half. The next Halving should occur on April 20, 2024, after which point the block subsidy will reduce from 6.25 bitcoin per block to 3.125 bitcoin per block.

The event will immediately reduce bitcoin miner revenues by 50%. To contextualize this, Bitcoin’s current hashprice (a metric that miners use to measure revenue) is $83/PH/day, which means that 10 industry-standard machines like the S19j Pro can currently produce $83 in bitcoin per day; if the halving were to happen today, hashprice would drop to $41.50/PH/day, so those same 10 machines would produce $41.50 per day.

While Bitcoin mining stock investors typically pay attention to bitcoin price when trading public miners, all else being equal, they should pay more attention to the revenue potential of these stocks by examining hashprice and each company’s specific operations.

There’s evidence that investors do at least take operations into account. Cleanspark, for instance, is up 118% this month on news that the miner has increased its operational capacity by 40% and that it is in talks to acquire four new bitcoin mining facilities. These expansions will help…