Despite the top-rated Bitcoin mining companies working against losses, their share prices have outperformed BTC dramatically over the past twelve months.
Appearing on CNBC, Leestr Shimron, Vice President of Digital Asset Strategy, Fundstrat, shared his analysis on the market performance of the four largest publicly traded mining firms – Marathon Digital Holdings, Riot Blockchain, Hive Blockchain and Hut 8, each represents a market capitalization of more than $ 1 billion.
Over the past twelve months, Shimron found that the average return on shares in the mining industry was 5,000%, while BTC rose 900% over the same period. It is not surprising that the stocks have a ‘high positive correlation’ with BTC.
The researcher concluded that Bitcoin mining stocks move by an average of 2.5% for every price movement of 1% in BTC. However, the observation applies to both upward and downward price movements, meaning that mining stocks are likely to decline by more than twice the aggression of BTC during clumsy market conditions.
“They will probably get heavy if Bitcoin declines,” he said.
Shimron attributes the wild volatility in mining stocks to the lack of regulated crypto-investment products in the United States, speculating that investors are public mining companies as one of the only ways to gain exposure to Bitcoin until a Bitcoin ETF is approved.
‘Since Bitcoin is the primary source of income, these businesses are fundamentally long [on] the industry – so investors are essentially picking and digging “when investing in miners.”
Noting that Coinbase’s shares are “trading at around $ 100 billion in the private market”, Shimron added: “Clearly investors have the appetite to gain exposure to operators within the crypto space, and miners are just another segment in it. “
Shimron also noted that supply chain disruptions amid the coronavirus pandemic have benefited the four largest mining firms – which could build next-generation hardware, such as Bitmain’s Antminer S19 series.
“They have made a huge capital investment and have a loss to position themselves for the current run,” he said, adding:
“By building their cash rate capability and increasing their leverage, they effectively protect themselves from competition between new miners. They have therefore increased their economies of scale to maintain market share, and I believe this should pay dividends going forward. ”