While bitcoin has gained around 900% in the last 12 months, shares in the four biggest publicly traded mining firms are up by around 5,000% in the same period. Despite the top publicly-traded bitcoin mining companies operating at losses, their share prices have managed to outperform the flagship cryptocurrency.
Leeor Shimron, Fundstrat’s vice president of digital asset strategy, while speaking on CNBC shared his analysis into the market performance of the four-biggest publicly-listed mining companies. The companies include Hut 8, Riot Blockchain, Marathon Digital Holdings, and Hive Blockchain. Each of these companies has a market capitalization of over $1 billion.
Shimron said that in the last 12 months the average return for shares in the mining companies was 5,000%, while bitcoin has gained 900% within the same duration. As expected, the stocks were discovered to have a “high positive correlation” with Bitcoin.
The Bitcoin Market Performance
The researcher concluded by saying that for every 1% price move in the bitcoin market, the mining shares moved by 2.5% on average. Nevertheless, the observation seems to apply to both the upward and downward price moves, which means that the mining stocks might plunge with over twice the aggression of bitcoin in strong bearish market conditions.
“They’ll probably be hit hard as Bitcoin draws down.”
Shimron said that this wild volatility in the miner stocks was due to a lack of regulated crypto investment products in the United States. He speculated that:
“Until a Bitcoin ETF is approved, investors may view public mining companies as one of the only ways to get exposure to Bitcoin. Since the primary source of revenue is Bitcoin, these companies are fundamentally long [on] the industry — so investors are essentially making a ‘picks and shovels’ bet when they invest in miners.”
Shimron also noted that:
“Coinbase’s shares are trading at a roughly $100 billion valuation in the private markets. There is investor appetite to gain exposure to operators within the crypto space, and miners are just another segment within that.”
He also noted that supply chain disruptions during the COVID-19 crisis were beneficial to the four biggest mining companies, that managed to stock up on next-generation hardware, including Bitmain’s Antminer S19 series. He concluded:
“They’ve made a huge capital investment and operate at a loss to position themselves for the current bull run. By building up their cash rate capacity and increasing their operating leverage, they effectively shield themselves from competition amongst new miners. So they’ve increased their economies of scale to retain market share, and I believe that should pay dividends going forward.”