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As the first U.S. onshore Bitcoin exchange-traded fund (ETF) appears to be on the horizon, the entire cryptocurrency industry is optimistic about how such a product can enhance Bitcoin's legitimacy in the investment world, drive institutional adoption, and push the price of Bitcoin to new highs. This optimism includes Bitcoin mining companies.
With the first U.S. onshore Bitcoin ETF about to launch, the overall sentiment in the cryptocurrency industry suggests confidence in how it will enhance Bitcoin's legitimacy in the investment world, drive institutional adoption, and propel Bitcoin's price to new highs.
To a large extent, this includes Bitcoin mining companies—these companies operate large clusters of computers dedicated to securing the Bitcoin network and earning newly minted Bitcoins. However, there is a key fact in the current Bitcoin investment landscape that might worry investors in mining companies.
"We're optimistic about the ETF, and there are signs it will have a positive impact," said Isaac Holyoak, Chief Media Officer of CleanSpark, to Decrypt. He noted that during bullish periods, mining stocks tend to inherit the positive momentum of Bitcoin.
While Bitcoin itself has seen an increase this year, publicly listed mining stocks have seen even higher returns—similar to other Bitcoin-related companies. In the absence of ETFs, these companies have been regarded as regulated, more traditional Bitcoin leveraged investment choices.
However, there is a challenge: while Bitcoin ETFs might seem promising, they could also draw funds away from stocks that investors have considered the best choices so far.
For CleanSpark, the company remains optimistic and focused on Bitcoin's price. "Recent developments, including false claims about ETFs and implications of CUSIP listings, have driven the increase in Bitcoin prices," emphasized Holyoak.
Since a significant portion of mining companies' revenue comes from fixed Bitcoin block rewards, an increase in the price of Bitcoin will result in higher dollar-denominated income for the entire industry.
To gain a competitive edge, CleanSpark expects the prices to increase in the future and has invested millions of dollars this year in mining equipment.
In an October mining industry report shared with Decrypt, J.P. Morgan stock analyst Reginald L. Smith tagged CleanSpark (CLSK) as an "overweight" stock, thanks to its purchases of hardware and facilities at a "significant discount" and the efficient operation of computer clusters. CLSK has risen 122% year-to-date.
Another company that made significant infrastructure investments this year is Iris Energy (IREN), a mining company focused on renewable energy, which is optimistic about the upcoming Bitcoin halving event. Smith also rated Iris Energy's stock as "overweight," and it has risen 161% this year.
Iris Energy's Co-founder and Co-CEO, Daniel Robert, stated, "[The halving] historically involves additional price catalysts as Bitcoin becomes scarcer. Combined with the possibility of a relaxed macro monetary environment in the next 6-12 months, we may be entering a golden age for Bitcoin."
Regarding ETFs, Roberts pointed out that approval by the U.S. Securities and Exchange Commission could bring a "large pool of money" to the Bitcoin market, combined with the bullish effects of halving and a relaxed macro environment.
Onshore Bitcoin exchange-traded funds differ from existing Bitcoin investment products in the U.S. because their shares can be directly exchanged for a fixed amount of Bitcoin held by the issuer and its partners.
Aydin Kilic, CEO of HIVE Digital, explained to Decrypt that onshore exchange-traded funds are invaluable for the current market. It will open up this asset class to professional investors and retail retirement accounts.
One of the primary choices in the stock market today is the Grayscale Bitcoin Trust Fund (GBTC), which charges high fees and cannot accurately track Bitcoin's price. The fund's shares currently trade at a discount, below the Bitcoin held by the fund. Efforts to transform this fund from GBTC into an onshore Bitcoin ETF have a good chance of success, and upon approval, this discount is gradually expected to disappear. If approved, the discount will disappear entirely.
While some may prefer to buy and hold Bitcoin directly, many retail investors may not be willing to buy Bitcoin from a cryptocurrency-specific platform that is typically unregulated. Additionally, as explained by Iris' Roberts, direct Bitcoin investments are entirely unfeasible for many larger companies.
He noted, "The investment regulations of institutional investors and general retail securities brokerage services often prohibit investing customer capital outside of certain defined instruments and securities. Therefore, an ETF might be a way to solve this issue."
Apart from GBTC, there are several other options, including cryptocurrency exchange Coinbase (COIN; up 120% year-to-date) and futures-based ProShares Bitcoin Strategy ETF (BITO; up 64% year-to-date). However, there are more than a dozen publicly listed mining companies that have performed well in Bitcoin.
J.P. Morgan's Smith, in a recent podcast interview, specifically mentioned Marthon Digital and Riot Platforms, the two largest Bitcoin mining companies, saying they are indirect Bitcoin investments, which are not as good as ETFs.
He explained, "Compared to buying Riot or Marathon, ETFs can more directly participate in the Bitcoin market, avoiding issues like hashrate and shutdown."
He added, "ETFs could also introduce an entire new area of arbitrage opportunities, perhaps buying Bitcoin directly and leveraging it cheaper than buying indirectly through one of these mining companies."
In this dynamic, Bitcoin mining companies and mining pool operator Foundry Digital acknowledge that ETFs may have a "counterintuitive negative impact" on the industry.
Alex Altman, Corporate Development Senior Manager at Foundry, and a CFA charter holder, stated, "Over the last few years, mining companies have been used as an alternative way to gain Bitcoin exposure in the public markets. Seeing how these new ETF tools will affect the public miner valuations will be interesting because investors now have a more direct and cost-effective way to gain exposure to this asset class." |
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Post time 8-11-2023 06:53:30