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💎 Are miners a good investment?

💎 Are miners a good investment?

PLUS: bitcoin to $150,000?

Alex M.
August 17, 2023

GM everyone. This is 2036, the crypto newsletter that pays you.

Here’s what we’re serving up today 🍲: miners are a hot topic in crypto. They generate coins and sell them on the market. Their stock prices are up nearly +300% this year. But are they a good investment?

Let’s dig in.

🥔 Today’s meat and potatoes

Get smarter on crypto in 2 minutes

Bitcoin miners are computers competing around the clock to solve mathematical problems.

In the process, they validate transactions on the bitcoin blockchain and earn a small amount of bitcoin as a reward.

This mechanism is called ‘proof-of-work.’ It secures the bitcoin network.

And it’s how bitcoin are created.

They’re “mined” into existence as rewards. Miners then sell the bitcoin on the open market. And that’s how they end up in the hands of us mortals.

[This is also why bitcoin gets a bad rep - this “work” consumes energy… but that’s a story for another time]

When bitcoin was first created, you could mine it with your computer's software.

the early days of bitcoin mining

But today, bitcoin mining requires highly specialized equipment and lots of cheap energy.

That’s because, over time:

the computing power required to mine bitcoin increases 📈
the bitcoin rewards miners receive decrease 📉

This decrease in rewards is called the halving and happens every ∼4 years. That’s why crypto works in 4-year cycles.

Voila, we’ve come full circle.

Today, mining is BIG business. Several miners are publicly listed companies that generate hundreds of millions of $$ in revenue.

Naturally, their stock prices somewhat follow crypto…

…but on STEROIDS.

Year-to-date, miners are up ∼300%. In the same time period, bitcoin is up “just” +72%.

But when they crash, they crash hard.

In the last bear market, they collapsed -95 to 98%.

That’s why over time, bitcoin miners have slightly underperformed bitcoin.

This could change, however.

If bitcoin continues to rally, investors could use miners as leveraged bets on crypto and push their prices to all-time highs.

But nothing is a guarantee.

Miners suffer from a structural problem: mining bitcoin isn’t always profitable.

If the computing power needed to mine bitcoin keeps increasing while mining rewards decrease, miners could find themselves in a tough spot.

That’s why we see miners as a gamble that could go both ways.

By investing in miners, you’re taking on:

broad crypto risk
industry risk (can miners remain profitable?)
individual company risk (is this company well managed/operated?)

… all at the same time.

But if you:

want to keep your money in your brokerage account and/or
don’t want to speculate with memecoins

… then crypto miners could be a tool to satisfy our inherent trigger-happy desire to gamble.

Just make sure it’s a small % of your portfolio (less than 5%)

The $WGMI miner index is popular (NASDAQ: $WGMI). It holds large individual names like Riot (NASDAQ: $RIOT) and Marathon (NASDAQ: $MARA) - all of which you can access with a regular brokerage account.