Bitcoin has risen 900 per cent in the last 12 months. In contrast, the shares of the four largest mining companies have risen by 5,000 per cent over the same period.
Bitcoin mining shares rise much more than BTC price
The leading listed bitcoin mining companies may be operating at a loss, but their share prices over the past 12 months have significantly outperformed the BTC price.
In an appearance on CNBC, Leeor Shimron, the vice president of digital asset strategy at Fundstrat, explained his market development analysis of the four largest publicly Bitcoin Lifestyle traded mining companies. These are Marathon Digital Holdings, Riot Blockchain, Hive Blockchain and Hut 8, which all have a market capitalisation of more than US$1 billion each.
Over the past 12 months, the average return for shares in mining companies has been 5,000 per cent, according to Shimron, while BTC has risen 900 per cent over the same period.
Unsurprisingly, the stocks have a „high positive correlation“ with BTC
The researcher concluded that when BTC moves by 1 per cent, bitcoin mining stocks move by 2.5 per cent on average. The observation applies equally to upward and downward movements. This means that mining stocks would likely crash twice as hard as BTC under bearish market conditions.
„They are likely to be hit hard when bitcoin falls,“ he said.
Shimron attributed the high volatility of miner stocks to the lack of regulated crypto investment products in the United States. He said „until a bitcoin ETF is approved, investors are looking at public mining companies as one of the only ways to invest in bitcoin“.
„Since the primary source of revenue is bitcoin, these companies are fundamentally bullish on the industry. Therefore, investors are essentially making a ‚pick and shovel‘ bet when they invest in miners.“
Shimron added that Coinbase’s shares „trade in the private market at a valuation of about $100 billion“: „There is clearly demand from investors to invest in operators in the crypto space. Miners are one of the many segments in this.“
Shimron also noted that the supply chain disruptions during the coronavirus pandemic were beneficial for the four largest mining companies. They were able to stock up on next-generation hardware, such as Bitmain’s Antminer S19.
„They have made a huge investment and are operating at a loss to prepare for the current bull market,“ Shimron said. He added:
„They are expanding their capacity and increased their operating capacity. This effectively shields them from competition from new mining operators. So they have increased their size to maintain their market share. I think this will pay off in the future.“