Despite the highest publicly-listed Bitcoin [BTC] mining firms operating at losses, their share prices have dramatically outperformed BTC over the past year.
While appearing on CNBC, Fundstrat’s vice chairman of digital asset strategy, Leeor Shimron, revealed his analysis into the market performance of the four-largest publicly-traded mining firms – Marathon Digital Holdings, Riot Blockchain, Hive Blockchain, and Hut 8, each of which represents a market capitalization of over $1 Bln.
Over the past 12 months, Shimron found the typical return for shares within the mining firms to possess been 5,000%, while BTC has gained 900% over an equivalent period. Unsurprisingly, the stocks were found to possess a “high positive correlation” with BTC.
The researcher concluded that for each 1% price move in BTC, Bitcoin mining shares move by 2.5% on average. Moreover, the observation applies to both upward and downward price moves, meaning mining stocks are likely to plummet with over twice the aggression of Bitcoin [BTC] during bearish market conditions.
“They’ll probably be hit hard as Bitcoin draws down,” he concluded.
Shimron attributed the wild volatility in miner stocks to the shortage of regulated cryptocurrency investment products within the U.S., speculating that “until a Bitcoin ETF is approved, investors may view public mining companies together of the sole ways to urge further exposure to Bitcoin.”
“Since the first source of revenue is Bitcoin, these firms are fundamentally long [on] the industry — so investors are essentially making a ‘picks and shovels’ bet once they invest in miners.”
Noting that Coinbase’s shares are “trading at a roughly $100 Bln valuation within the private markets,” Shimron added: “Clearly there’s investor appetite to realize exposure to operators within the cryptocurrency ecosystem, and miners are just another segment within that.”
Shimron also outlined that offering chain disruptions amid the COVID-19 outbreak were beneficial to the four largest mining firms – who were able to refill on next-generation hardware, like Bitmain’s Antminer S19 series.
“They’ve made an enormous capital investment and operate at a loss to position themselves for the present bullish run,” he revealed, adding:
“By building up their cash rate capacity & hiking 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 that I believe that ought to pay dividends going forward.”