Miners weakness before the Bitcoin halving

Bitcoin miners report, April 2024

We have been looking at the Bitcoin miners as a leveraged play over Bitcoin for over a year. At that time the bet was that the upcoming bull market would benefit the miners even more than Bitcoin. The risk was that if the ETFs were approved money would be diverted away from the miners and into the ETFs.

The more time passes, the more the risk posed by the ETFs is materializing.

There is still uncertainty on whether or not the miners thesis is dead. But with the halving coming we are getting close to the moment of truth.

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Miners weakness before the Bitcoin halving

The Bitcoin miners thesis is simple. 

The profitability of the Bitcoin mining companies strongly depends on Bitcoin's price. That make the Bitcoin miners stocks closely tied to BTC and thus good proxies for getting exposure to the Bitcoin market. 

At the same time those miners stocks are small. Much smaller than Bitcoin. So capital inflows in the miners market tend to create outsized returns.

The investment thesis is that in the coming bull market, the institutional money will want to own Bitcoin miners stocks in order to get exposure to BTC. The buying pressure coming from that demand will make it so that the Bitcoin miners stocks will deliver returns that are several times larger than Bitcoin itself over the same period.

This is the bet we are tracking in our monthly miners report.

The takeaway

The correlation between Bitcoin and the miners is breaking down. The returns of the miners are nowhere near what we would expect after Bitcoin just made a new all-time high. 

The track record of our miners bet so far is that it was not worth the risk. But the miners thesis isn’t completely dead yet. 

The last thing that might be holding the miners back is the uncertainty surrounding the profitability of the miners after the halving.

If we don’t see a reversal in the correlation between BTC and the miners after the halving then our thesis is invalid.

The trend correlation is weak