Bitcoin Mining Shares Generate Greater Returns Than Bitcoin Itself

Julija A. Image
ByJulija A.
March 25, 2021
An analysis of the bitcoin mining market written by Leeor Shimron, the vice president of digital-asset strategy at Fundstrat, reveals that the return for Bitcoin mining shares grew 455% more than the cryptocurrency itself.

When we take into account Bitcoin’s unprecedented surge in recent months, the fact that Bitcoin mining is outperforming cryptocurrency by such a significant margin is truly astonishing. This also indicates that the Bitcoin mining market is even more bullish than the digital currency.

From cartels to companies and governments, everyone seems to be using crypto these days. Cryptocurrency has become both increasingly valuable and part of our lives. None more so than Bitcoin, which is currently valued at more than $57,000 per coin. 

Shimron’s analysis shows that Bitcoin grew by 900% in the last 12 months. At the same time, the average return for shares for the four biggest publicly traded mining companies - Hive Blockchain, Riot Blockchain, Marathon Digital Holdings, and Hut 8 - grew by 9,000%.

It comes as no surprise that spikes in Bitcoin’s value are reflected in the mining sector. According to Shimron, every 1% move in the Bitcoin price causes a 2.5% change in mining shares. This goes both ways, as drops in price also have a 2.5% negative effect on share returns.

However, this has not translated into incredibly high-profit margins for these companies. Not yet, at least. That’s because of the massive investments they made to obtain high-end mining equipment. For example, Marathon spent $170 million to purchase 70,000 S-19 ASIC Bitmain miners. 

While these investments had a negative effect on profitability, they are sure to pay off in the current bull market cycle. Due to difficulties in obtaining mining equipment and mining-related hardware amid supply line disruptions during the COVID-19 pandemic, the largest companies have managed to capture the market with these investments. Each of these companies has a market cap larger than $1 billion today.

The author of the Fundstrat analysis states that the volatility in the miner market can be explained by the lack of a sufficient number of Bitcoin ETFs, especially in the US.

There’s clearly a great deal of interest in Bitcoin, but the lack of regulated investment products means that mining companies are a great way for investors to gain exposure to Bitcoin.

While the rise in the average return for shares is undoubtedly apparent, it remains to be seen whether this will prove profitable in the long run. The signs are encouraging, with recent reports from the infamous WallStreetBets subreddit indicating that retail investors might also start investing heavily into the Bitcoin mining market.
About author

Albert Einstein is said to have identified compound interest as mankind’s greatest invention. That story’s probably apocryphal, but it conveys a deep truth about the power of fiscal policy to change the world along with our daily lives. Civilization became possible only when Sumerians of the Bronze Age invented money. Today, economic issues influence every aspect of daily life. My job at Fortunly is an opportunity to analyze government policies and banking practices, sharing the results of my research in articles that can help you make better, smarter decisions for yourself and your family.

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