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- ⚒️ Is it time to buy bitcoin miners?
GM everyone. This is 2036. We scroll for gems all day so you don’t have to.
Here’s what we’re serving up today 🍲: yesterday, I told you about an undervalued gem - Coinbase stock ($COIN). But there’s another segment of the market with huge potential that no one is looking at.
Let’s dig in.
Most people don’t understand how bitcoin mining works.
Something-something-proof-of-work.
So it’s no surprise that even sophisticated investors don’t know how to value bitcoin mining stocks.
Bitcoin miners are supercomputers that compete to solve mathematical problems that secure the bitcoin network. In exchange for solving problems, they get rewarded with bitcoin.
Entrepreneurs have built enormous facilities with thousands of bitcoin miners. And some of these companies have gone public and trade on stock exchanges.
And they’re quite the ride.
Bitcoin mining stocks are the Wild West of crypto in your brokerage account.
They’re like NFTs for those who don’t want to go on-chain.
With just a click inside your investment account, you can get leveraged exposure to the price of bitcoin.
Bitcoin up 📈? Bitcoin miners up 100X.
Bitcoin down 📉? Bitcoin miners down -99%.
In the last bull market, $MARA and $RIOT - two bitcoin mining stocks - climbed ∼17,500% and ∼10,000% respectively.
That’s enough to turn $10,000 into $1 MILLION.
Not bad.
Bitcoin mining stocks are hyper volatile.
On their way to the moon (or down the toilet), they can easily crash or soar 10-50% in a day.
So they’re not for the faint of heart.
But it looks like, recently, the wind has been blowing in their favor 🌬️.
You see, up until recently, bitcoin mining stocks faced some serious headwinds.
Their expected revenue per unit of power (called ‘hashprice’) didn’t keep up with the increase in the price of bitcoin.
Any increase in transaction fees was offset mainly by an increase in the number of miners competing for the same rewards. And electricity costs - one of their biggest expenses - kept going up.
So, miners struggled. They issued new shares to help pay their debt, diluting existing shareholders.
But the worst seems to be over now.
Hashprice - driven by increased transaction fees - is going up. New innovations, like Ordinals, are expanding the use of the Bitcoin network.
Share issuances are over. And electricity prices are coming down.
Better miner profitability leads to less forced bitcoin selling (to pay the bills), which leads to even better profitability. It’s a positive feedback loop.
Combine this with the recent price action of miners, and we have a potential recipe for success.
Year-to-date, many of the miners have mirrored Bitcoin’s success…
But since June:
Bitcoin is up +43%.
The Bitcoin Miner Index ($WGMI) is down -54%.
For a leveraged play on Bitcoin, they’ve severely underperformed.
But we expect that to change soon.
An easy way to get exposure to bitcoin mining stocks is to buy the index $WGMI in your brokerage account.
But if you want to own individual names, $RIOT has the strongest balance sheet and the best long-term contracts.
