A risky bitcoin buy in bigger bull market than the crypto currency

All the commodity markets have their leveraged investments. Crude oil has wildcat exploration and production facilities; gold and precious metals cause the mining operations to do the dirty work in the ground. A commodity of the future, bitcoin, is no exception to the rule that if there is a scarce resource in the world to exploit, and investors attach increasing value to it, miners will encourage themselves to make their claim to wealth .

Recent gains in what may be the risk with the best risk of all have led Leeor Shimron, vice president of digital asset strategy at Fundstrat Global Advisors, to look at the ‘digital gold rush’ in bitcoin miners’ trading.

These mining companies are fairly new and young, they have no records, and some have come to the market on a “detour” – and some of the largest, such as Riot Blockchain, drew regulatory scrutiny in their early days. They also worked with losses, but Shimon noted that they reached over $ 1 billion in market capitalization after investing in the hardware and facilities during the bitcoin downturn that helped them ‘make it big’ in the current bitcoinbul mark cycle.

Shimron described the miners in a note to customers last week who expressed interest in the rising stock as a ‘high beta game’ on bitcoin. During the recent bull run for the cryptocurrency, during which bitcoin rose by 900%, the average return among the largest mining companies was 5,000%, according to its analysis.

Bitcoin miners, in the words of Shimron, form the core backbone of bitcoin’s blockchain, as they ‘burn electricity to guess guesses to solve cryptographic puzzles’ and to earn revenue in the form of mined bitcoin. As the bitcoin is mined, the miners sell the assets to cover their expenses. Many also choose to keep a portion of their mined bitcoin on their corporate balance sheet, a trend that is starting to pull off with the more digitally-oriented, disruptive executive class in the broader market, such as Jack Dorsey at Square and Elon Musk at Tesla. Musk has just added ‘Technoking’ to its executive title, and Tesla’s chief financial officer recently added ‘Master of Coin’. The North American mining company, Marathon Digital Holdings, recently announced that it has bought another $ 150 million of bitcoin to keep on its balance sheet.

The largest listed companies that the Fundstrat analyst rated include the two Nasdaq-listed companies, Riot Blockchain and Marathon Digital Holdings, and two off-the-counter market shares, Hive Blockchain and Hut 8.

Shimron’s analysis shows that the beta displayed by these bitcoin mining companies yields a return of 2.5% for every 1% move in the cryptocurrency. Although there is not enough historical data to draw firm conclusions, the performance of the miners is clearly linked to the price of bitcoin, and their trading profile reinforces the downside and downside, he said.

It is a “notoriously competitive industry”, according to Shimron, where the ability to be profitable can amount to cheap electricity and access to specialized mining hardware. As bitcoin’s price increases “miners build new equipment or upgrade their hardware with more powerful and efficient machines.”

Marathon recently signed a $ 170 million deal for Bitmain’s 70,000 S-19 ASIC miners, which will increase its mining power to 103,000 machines later this year.

This high cost of doing business in bitcoin mining results in low or negative free cash flow and muted earnings, Shimron writes. But the mining companies have caught the growth of the current bitcoin bull cycle for the moment because of their spending. (They also saw wild trading in the 2017 bitcoin boom.)

Now they have also attracted attention by some of the latest forces from the market, as a recent piece by Bloomberg noted that bitcoin miners were discussed on the WallStreetBets message board on Reddit, which fueled the mania in GameStop’s shares.

“For investors who want exposure to miners, the beta makes it a great opportunity amidst a roaring bull market. … There are attacks and retreats, but we still have a lot of room to grow here,” Shimron said. . said in an interview with CNBC.

It is the broader bull market in cryptocurrency that has fueled the miners, and Shimon thinks it could continue in 2021, driven by macroeconomic and demographic factors. Fear of inflation will support bitcoin prices, and even amid recent yield pressures from the 10-year treasury that can work on cryptocurrency as well as on technology stocks, he said it was clear from the Fed signal that the central bank wants its pigeon policy retained in place until 2023.

Another driving force is the continued adoption of new digital technologies and digital assets by younger investors. “You see younger people being attracted to bitcoin and other digital currencies as opposed to gold and commodities, and that speaks of a demographic shift. … For them, it’s not crazy to deal with money in a purely digital way , “he told CNBC.

Last week, Morgan Stanley became the first major Wall Street bank to offer its wealthy customers access to bitcoin. This limited access to customers by at least $ 2 million, given the risks involved.

There are already ways in the crypto market besides the underlying currencies, such as the exchanges that trade coins and will soon be available to more investors. Coinbase was recently valued at $ 68 billion in the private market and plans a direct listing on the Nasdaq.

There are three bitcoin ETFs in Canada, and at some point there may be a bitcoin ETF available in the US. The Securities and Exchange Commission’s latest effort was filed by VanEck ETFs in mid-March, but with investors not piling up hope. SEC will soon approve a bitcoin fund, they are looking elsewhere for investment ideas for cryptocurrency that go beyond buying bitcoin itself.

Shimon, who had an early-stage cryptocurrency and blockchain enterprise fund before joining Fundstrat, said he sees the miners as a foundation for the crypto-space. “The top companies will be here to stay,” he said, pointing to the economies of scale invested in equipment against which new entrants will have a harder time competing.

After the “smart move” was made during the bitcoin bear market to expand operations, the current shortage of the supply chain in the technical sector caused by Covid may further help the positioning of these miners to the capital they already have in specialized machines for space.

Like many traders and hedge funds with gold miners and small-cap oil explorers do, he tends to trade the bitcoin miners on a bull market, rather than seeing them as long-term investments.

Shimron still prefers bitcoin as a long-term investment, as well as any ETF that is eventually approved by the SEC for U.S. investors. “It’s only a matter of time before the SEC approves a bitcoin ETF,” he said. “When a BTC ETF arrives, the fees will be low and this is the safest and easiest way to use traditional tracks to get exposure to bitcoin,” he said.

The miners have been criticized for the large amounts of electricity needed for bitcoin operations, but Shimron’s opinion boils down to financial and market performance. (He says there is also much to criticize about the impact of the fiat currency system on the world.)

“It’s pretty clear that the US dollar, since a global reserve currency is on its last leg, will not disappear any time soon, but we are in the later stages of the US dollar as the reserve currency, and decentralized is the next phase.”

Although bitcoin mining stocks are too high a risk for most investors, he is confident that he says the world of cryptocurrency should be on everyone’s radar. “This is where everything is going. Finance was the last switch that has not yet been affected by the internet,” Shimron said.