Bitcoin Up, Bitcoin Miners Down? Making Sense of an Odd Week
I have two theories as to why the public mining equities have largely lagged the performance in Bitcoin this week.
It’s been an admittedly frustrating week so far for the Bitcoin mining equities. At this point, I’ve stressed numerous times publicly that I think the long term investment merits for these stocks is very debatable. Bitcoin’s block reward diminishes over time by design. These block reward reductions are called “halvings” and they happen every four years. When these kinds of events happen, and we’re roughly 6 months away from the next one, input costs generally stay the same while revenue is reduced by 50% literally overnight.
It’s a dangerous game to be in if you’re not running an efficient operation and my view has been that without meaningfully higher Bitcoin prices, some of these companies are going to go bust post-halving. What’s been interesting is watching most of these Bitcoin miners significantly lag during a week when Bitcoin itself is up 20%. Flat out, I don’t know why this is happening with any degree of certainty. But I do have two theories.
Theory 1: Down in Sympathy
This theory is pretty straightforward. Often times when the broad stock market is taking a beating, all equities generally go down together even if the underlying fundamentals for some of those companies are improving. We actually have that exact scenario arguably playing out in the gold miner equities as I type. Gold is slightly up on the day’s session while the miner stocks are all down between 1-3%.
I believe those stocks may have the broader market to blame and that could absolutely be playing in to the underperformance in the bitcoin mining equities as well. Frankly, broad equities look terrible to me from a TA standpoint and short of a miracle rally tomorrow to repair the weekly candle, this has been a pretty damaging week in my view.
Theory 2: Fundamentals Matter Now
Dare I say it, we may actually just be witnessing a more sophisticated market that understands these business economics a little better than during the 2020/2021 bull run. I think there may be something to this theory because it has been 3.5 years since the halving. There are almost a dozen more BTC mining equities available now than there were 3 years ago. Furthermore, we are in a dramatically different interest rate environment now compared to the last bull run. In my view, investors are simply being more selective and I think we can find some signals if we look for them.
Here’s a performance table that I think contains some interesting tells:
I picked 8 of the public miners that I feel are both well capitalized and the most directly connected to the performance of BTC. I wanted names that have trading histories of at least a year. This ruled out Bitdeer BTDR 0.00%↑ but Cipher Mining CIFR 0.00%↑ made the cut. Even though it’s smaller, I also included TeraWulf WULF 0.00%↑ because I hold it both in HSEP and a much larger position in my IRA.
Only CIFR is ahead of BTC over the last twelve months which I find to be astounding. Marathon Digital MARA 0.00%↑ is the only one that has outperformed BTC going back 3 years. But it’s the most recent week performance that is really interesting to me. WULF isn’t down, but it feels like it is at +0.8%. The only stock of the 8 that is actually down week over week is Iris Energy IREN 0.00%↑ - this is a name that I’ve personally been in and out of several times. No position today.
What is telling to me about IREN and WULF specifically is those are the two companies that sell all production every month. They don’t hold any BTC on the company balance sheet while every other miner generally tries to. For instance, Bitfarms BITF 0.00%↑ sells most of it’s monthly production to cover costs and tries to keep the rest. As does CleanSpark CLSK 0.00%↑. Hut 8 Mining HUT 0.00%↑ somewhat famously tried to do a “HODL” approach where it kept everything and just diluted shareholders when it needed to raise cash.
With Cipher Mining being the exception, I do seem to notice at least a small correlation between BTC on balance sheet and performance over the last week. HUT, MARA, an Riot Platforms RIOT 0.00%↑ are all outperforming the companies that don’t hold any BTC. And with 6 months left to scale a meaningful stack, it’s not a huge surprise weeing WULF and IREN looking weaker at the moment.
Anyway, I thought I’d share these general thoughts for those of you who may be wondering why the miners seem so anemic. I’m noticing it too. Take my non-professional thinking for what it’s worth!
Disclaimer: I’m not an investment advisor. I’m personally long RIOT, BITF, CLSK, and WULF in my IRA.