Bitcoin: Mining stocks, a bet on high-leverage BTC (analyst)

All commodity markets can be played upstream, via the shares of companies that produce these commodities. For oil, they are exploration and production companies. For gold and precious metals, it is mining.

Bitcoin, which is closer to a commodity than other asset classes according to many experts, is no exception to the rule that says when there is a scarce resource to be exploited in the world and investors give it a growing value, miners rush to appropriate the wealth.

Based on this premise, Leeor Shimron, vice president of digital asset strategy at Fundstrat Global Advisors, advises addressing the “digital gold rush” through the purchase of shares in mining companies. ) of Bitcoin, according to a note released last week.

These are relatively new and young societies with no antecedents. Riot Blockchain is arguably one of the most well-known names in this field. Shimon notes that these companies recorded losses, but noted that they reached a market capitalization of over $ 1 billion after investing heavily, during the bitcoin crisis, in the hardware and facilities that brought them down. allowed to “strike a blow” in the current bullish cycle of bitcoin.

Note that last week, Shimron described the actions of Bitcoin miners as a “high beta bet” on bitcoin. During the recent period of the cryptocurrency’s rise, during which bitcoin rose 900%, the average return of the largest publicly traded miners was 5,000%, according to his analysis. We could therefore consider the actions of Bitcoin mining companies as a leveraged bet on cryptocurrency.

Shimron’s analysis indeed shows that these stocks generate a return of 2.5% for every 1% movement of Bitcoin.

Bitcoin miners, according to Shimron, form the backbone of the bitcoin blockchain because they “burn electricity to solve crypto puzzles” and generate income in the form of mined bitcoins. When bitcoin is mined, miners sell the assets to cover their expenses. Many are also choosing to keep some of the mined bitcoin on their corporate balance sheets, a trend that is starting to gain traction with CEOs like Jack Dorsey at Square Inc (NYSE: SQ) and Elon Musk at Tesla Inc ( NASDAQ: TSLA).

Finally, it should be noted that the largest publicly traded mining companies that the Fundstrat analyst examined include two Nasdaq-listed companies, Riot Blockchain Inc (NASDAQ: RIOT) and Marathon Digital Holdings Inc (NASDAQ: MARA), and two stocks from the over-the-counter market, HIVE Blockchain Technologies Ltd (TSXV: HIVE) and Hut 8 Mining Corp (TSX: HUT_t).