Ecoinometrics - What is the upside on Bitcoin miners?

Is it a better deal to buy BTC or the miners stocks?

In 2023 there is a few ways of getting exposure to Bitcoin. You can buy spot BTC. You can buy Bitcoin futures or options. You can buy Bitcoin related ETFs. And you can also buy stocks whose valuation is related to Bitcoin.

As part of the last category Bitcoin miners stocks are an obvious choice. And during the last bull market they performed exceptionally well, especially when compared directly to spot BTC. 

But what are the chances that the same thing happens again in the next bull market?

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What is the upside on the Bitcoin miners?

Why buying Bitcoin miners?

I have not run any deep analysis of the business of Bitcoin mining in a long time. But at a high level this looks like a tough business:

• You have to invest in a lot of mining equipment at scale.

• You have to keep this equipment relevant to maintain performance.

• You have to pay your electricity cost upfront.

• Your revenue in US$ can be highly variable over month over month or year over year.

So one thing that’s certain is that you aren’t going to buy Bitcoin miners stocks for their ability to spit out some stable cashflow every quarter.

No, the reason most people are buying Bitcoin miners stocks is that they are just another way of getting exposure to Bitcoin. More than that they are a way of getting exposure to Bitcoin in a fashion that is familiar to traditional investors who don’t want to touch crypto directly for regulatory (or other) reasons.

In particular that means a lot of deep pocket institutional investors are bidding up those miners every time BTC looks like it is getting hot.

Until there is a some crystal clear regulations around crypto especially in the US, you can expect that this dynamic will continue to play out. That means one reason you might want to invest in the Bitcoin miners now is that you expect there will be a lot of institutional buying pressure during the next bull market.