Despite major publicly traded Bitcoin mining companies operating at a loss, their stock prices have dramatically outperformed BTC’s performance in the past 12 months.
Appearing on CNBC, Fundstrat’s vice president of digital assets strategy, Leeor Shimron, shared his analysis of the market performance of the four largest publicly traded mining companies – Marathon Digital Holdings, Riot Blockchain, Hive Blockchain and Hut 8, each of which represents a market capitalization of more than $ 1 billion.
In the past 12 months, Shimron found that the average return on mining companies’ shares was 5,000%, while BTC gained 900% in the same period. Unsurprisingly, stocks were found to have a “high positive correlation” with BTC.
The researcher concluded that for each 1% price move in BTC, Bitcoin mining stocks move on average 2.5%. However, the observation applies to bullish and bearish price movements, which means that mining stocks are likely to plunge more than twice as aggressively during the bearish market conditions.
“They are likely to be hit hard when Bitcoin is withdrawn,” he said.
Shimron attributed the great volatility in mining stocks to the lack of regulated crypto investment products in the United States, speculating that “until a Bitcoin ETF is approved, investors may see public mining companies as one of the only ways to gain exposure to the Bitcoin “.
“As the main source of revenue is Bitcoin, these companies are fundamentally long [on] the industry – so investors are essentially making a ‘picks and picks’ bet when they invest in mining companies. “
Noting that Coinbase’s shares are “being traded at a valuation of around $ 100 billion in private markets,” Shimron added: “Clearly, there is an investor’s appetite to gain exposure to operators within the cryptographic space, and mining companies are just another segment within that. “
Shimron also noted that supply chain disruptions in the midst of the coronavirus pandemic have been beneficial to the four largest mining companies – which have managed to stockpile next-generation hardware, such as Bitmain’s Antminer S19 series.
“They have made a large capital investment and are operating at a loss to position themselves for the current bull run,” he said, adding:
“By building their cash capacity and increasing their operating leverage, they effectively protect themselves from competition between the new mining companies. So, they increased their economies of scale to retain market share, and I believe that this will pay dividends in the future. “