Key Points:
- Bitcoin ETFs’ Impact on Mining Firms
- Optimism and Concerns Amongst Miners
- The Shift Towards Institutional Adoption
The imminent arrival of the first U.S. spot Bitcoin ETF has created a wave of optimism within the cryptocurrency industry. Many believe this product could enhance Bitcoin’s credibility in the world of investment, fuel institutional adoption, and propel BTC’s price to new heights. Among those hopeful about the ETF’s prospects are Bitcoin mining companies, which operate substantial computer fleets dedicated to securing the Bitcoin network and earning new coins. However, a significant aspect of the current Bitcoin investment landscape raises concerns for mining firm investors.
“We are optimistic about the ETFs, and there are indications it will be positive,” said Isaac Holyoak, Chief Communications Officer at CleanSpark, in an interview with Decrypt. He pointed out that mining stocks tend to benefit from Bitcoin’s positive momentum during bullish periods.
While Bitcoin itself has seen a more than 100% increase in value this year, publicly traded mining stocks have posted even more robust returns, along with other companies linked to Bitcoin. So far, these companies have acted as regulated and more conventional ways for investors to gain leverage on Bitcoin in the absence of an ETF.
However, here lies the challenge: Bitcoin ETFs, although promising, might redirect capital away from these stocks that investors have previously viewed as the next best alternative.
CleanSpark remains optimistic and maintains its focus on Bitcoin’s price. According to Holoyak, recent developments, such as the false claim of an ETF and hints of one with the CUSIP listing, have boosted the price of Bitcoin. This is significant because a rising BTC price translates to higher USD-denominated revenue for the entire mining industry, as a substantial portion of a mining firm’s income comes from fixed BTC block rewards.
In anticipation of higher future prices, CleanSpark has invested millions of dollars in mining equipment this year to gain a competitive edge. J.P. Morgan equity analyst Reginald L. Smith labeled CleanSpark (CLSK) as an overweight stock in an October mining industry report, thanks to its acquisition of hardware and facilities at deeply discounted prices and the operation of a highly efficient fleet. CLSK has seen a 122% increase in value year-to-date.
Iris Energy (IREN), a renewable-focused mining company, has also made significant infrastructure investments this year and is bullish about the upcoming Bitcoin halving. Smith similarly rated Iris shares, which have gained 161% this year, as “overweight.”
“The halving historically involved an additional price catalyst as coins become even scarcer,” explained Daniel Robert, co-founder and co-CEO of Iris Energy. He also noted that a potential easing of macro monetary conditions in the next 6-12 months could make this period very interesting for Bitcoin.
In terms of an ETF, Roberts suggested that SEC approval could bring substantial capital to the Bitcoin market, combining with the bullish effects of the halving and macroeconomic conditions.
A spot Bitcoin ETF differs from existing Bitcoin investment products in the United States as its shares can be directly redeemed for a fixed amount of BTC held by the provider and its partners.
“A spot ETF would be infinitely preferable to the fund options on the market today,” explained HIVE Digital CEO Aydin Kilic to Decrypt. “It would unlock this asset class for professional investors and retail retirement accounts.”
Shares in the trust currently trade at a discount to the fund’s underlying BTC holdings. This discount is narrowing over time as confidence grows in the fund’s efforts to convert into a spot Bitcoin ETF, which will likely disappear entirely if approved.
While some may prefer to buy and hold BTC directly, many retail investors may be less comfortable buying coins from crypto-specific platforms, which are often unregulated. Furthermore, physical Bitcoin investment is not feasible for many larger firms due to institutional investment mandates and restrictions on client capital.
Apart from the Grayscale Bitcoin Trust (GBTC), other options include the crypto exchange Coinbase (COIN; +120% YTD) and the futures-based ProShares Bitcoin Strategy ETF (BITO; +64% YTD). However, there are more than a dozen publicly traded mining companies that have performed well against Bitcoin so far.
In a recent podcast interview, J.P. Morgan’s Smith pointed out that Marthon Digital and Riot Platforms, two of the largest Bitcoin mining companies, may be less attractive indirect Bitcoin investments compared to an ETF.
“It gives you a cleaner play on Bitcoin than buying Riot or Marathon,” he stated. “With that type of purchase, you’re dealing with hashrate, outages, things like that.”
Foundry Digital, a Bitcoin mining firm and pool operator, acknowledged that an ETF could have “counterintuitive negative consequences” for the industry. According to Alex Altman, CFA and Senior Manager of Corporate Development at Foundry, “Over the past few years, mining companies have been used as proxies to get access to Bitcoin exposure in the public markets. It will be interesting to see how these new ETF vehicles will impact public miner valuations as investors will now have a more direct, cost-effective way to access the asset class.
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Disclaimer: Please note that the viewpoints and perspectives expressed by the author, as well as any individuals referenced in this article, are intended solely for informational purposes. They should not be construed as financial or investment advice. It’s important to acknowledge that investing in or trading cryptoassets carries inherent financial risks.
