Editor's note: This article was published on March 6, and the data is lagging behind (Odaily Odaily also marks the latest data), but the views expressed in the article still apply to the upcoming Bitcoin halving event.
- We found that investors are " long Bitcoin and short mining machines. " Before Bitcoin is about to be halved, compared with the risks that may arise from holding mining machines, it is safer for investors to invest their funds in Bitcoin spot ETFs. .
- Miners need to prove they can deliver strong returns to convince investors to hold onto their shares.
- Historical patterns suggest that mining stocks may rebound after the halving , while transaction fees, M&A and other strategies may help them stay profitable.
On Tuesday (Note: The original article was published on March 5), Bitcoin (BTC) hit a record high, and the cryptocurrency community was excited.
But shares of miners that play a key role in the Bitcoin ecosystem have failed to replicate their dizzying gains as investors, wary of the impending risks of the so-called halving, instead put money into spot Bitcoin ETFs . Historically, Bitcoin miners have been seen as a proxy for the price of Bitcoin, but are rewarded more when Bitcoin rebounds. Investors around the world, unable to buy Bitcoin from exchanges due to restrictions, can buy mining stocks to gain exposure. This fueled the stock price's surge during the last bull cycle in 2021.
Since then, as expected, these stocks have fallen sharply in the ensuing bear market, and some high-profile miners have filed for bankruptcy. As the industry emerges from a brutal cryptocurrency winter and miners clean up their kinks, they hope their shares will rebound on a Bitcoin rally. But something unexpected happened: the price of Bitcoin has increased by about 54% this year, and has just hit more than 69,000 US dollars (Note: As of the release of data on March 6, according to OKX exchange data, as of the publication of this article, the all-time high has exceeded 73,000 USD) at an all-time high, while the Valkyrie Bitcoin Miners ETF (WGMI), a fund that tracks the performance of publicly traded miners, fell about 21% .
The decoupling between Bitcoin and mining stocks is a stark reminder to investors: This bull market is like no other.
This time, the main driver of Bitcoin’s rally is the U.S. Securities and Exchange Commission’s (SEC) approval this year to launch a spot Bitcoin exchange-traded fund (ETF) in the United States.
Just like miner stocks, these ETFs trade on stock exchanges and can be traded by almost any U.S. brokerage account. This gives investors more direct exposure to digital assets rather than having to purchase through separate accounts on cryptocurrency exchanges. This also ensures that investors can hold Bitcoin without having to expose their portfolios to the volatility of mining stocks and their company risks.
“ With the approval of the Bitcoin ETF product, investors can now directly benefit from Bitcoin price growth. ” Galaxy Mining analysts led by Brandon Bailey wrote in a research report: “Prior to ETF approval, listed mining stocks were one of the only traditional vehicles for investors to gain exposure to Bitcoin price appreciation. It is possible that retail investors will still buy mining stocks, but for institutional investors – in most cases Under the circumstances, they are the force driving up the price of Bitcoin - short-selling mining stocks have become their preferred trade." The report added: "In the short term, institutions seem to be more inclined to long Bitcoin ETFs and short mining stocks. We You see that starting to happen since the beginning of 2024."
Analysts say investors may be deterred from raising capital for some miners unless they can show strong positive cash flow, which would "give operators lower margins, higher costs and poorer returns on capital." stock market challenges."
Uncertainty about Bitcoin halving
Another obstacle facing mining stocks this time is the upcoming Bitcoin halving event in April, which will increase competition among miners. The halving is part of the Bitcoin network’s code to reduce inflationary pressure on the cryptocurrency. Miners are rewarded with Bitcoin for running the network, but the halving cuts the reward in half every four years.
Bitcoin surged after the last halving in May 2020, and miners got on board. At that time, there were not many large miners. But this time, there are many large miners on the market who will compete for Bitcoin rewards and the block reward will be reduced from 6.25 BTC to 3.125 BTC. In addition, the difficulty of mining a block has also risen to a record high, which will make the situation after the "mine closure" even more severe.
“This creates huge uncertainty for investors in mining stocks.” George Kikvadze, executive vice chairman of Bitfury Group, wrote in a blog post: “Which miners will be able to weather the storm and emerge in the upcoming mining industry?” There is still uncertainty about surviving the upcoming revenue halving." He added: "As a result, investors are looking for tangible guarantees in this uncertainty and are moving funds into Bitcoin ETFs that are considered safe."
temporary setback
So, is there a glimmer of hope for the miners?
Analysts at Galaxy predict several positive trends that could help miners. One of these is transaction fees, which could be the “biggest variable” in mining revenue in 2024. Because fees generated by Ordinals (NFT-like assets recorded on the Bitcoin blockchain) have recently helped miners’ income , this may help them stay afloat after the halving.
The analysts wrote: “While we expect hash rates to decline after the halving (as weaker miners shut down their operations), a significant spike in fees over the same period could significantly boost revenue to the point where it would otherwise be unprofitable. Miners with less efficient graphs can still mine within their profit margins.”
Other options that are helpful to miners include hedging electricity costs and using mined Bitcoin to hedge against price fluctuations. Analysts also predict that M &A activity is likely to increase this year as smaller, less efficient miners may need to be acquired by larger miners to survive competition.
Meanwhile, Bitfury’s Kikvadze said that despite market concerns, historical precedent suggests miners will “thrive” after the halving. He looked at how publicly traded miner stocks performed during the May 2020 halving, showing that “miners underperformed or were on par with Bitcoin in the months leading up to the halving, but subsequently Miners outperform Bitcoin in 'Bitcoin Summer' bull market."
So far, miners have underperformed Bitcoin price during the halving event. If history holds true, mining stocks are likely to gain traction following the halving event, while a rebound in Bitcoin prices above all-time highs could also help.
“ The current downturn among publicly traded Bitcoin miners is a temporary setback and is to be expected during a halving event. As the dust settles, strong miners will shine and investors will flock to the market. ” said Kikvadze.
