Introduction to Bitcoin and Its Impact on the Market
During the past three years, Bitcoin’s price surged greater than 450%. The world’s top cryptocurrency rallied as rates of interest peaked, its first spot price exchange-traded funds (ETFs) were approved, and its latest halving cut the rewards for mining in half. The growing adoption of Bitcoin amongst retail, institutional, corporate, and even government investors made it seem to be a more viable hedge against inflation and other macro headwinds.
The Rise of Bitcoin and Its Effect on Related Stocks
Bitcoin’s rising price lifted the stocks of many firms invested within the cryptocurrency’s future. Strategy, which transformed from a slow-growth enterprise software company right into a Bitcoin hoarder, saw its stock surge nearly 1,000% in the course of the past three years. However, the 2 biggest Bitcoin miners, Mara Holdings and Riot Platforms, underperformed the token. During those three years, Mara’s stock rose lower than 50% as Riot’s stock advanced lower than 240%.
How Bitcoin Miners Make Money
Mara and Riot weren’t originally Bitcoin miners. Mara was a patent holding company, while Riot was a struggling medical device maker. But because the Bitcoin boom began, each firms abandoned their original business models, ordered 1000’s of dedicated Bitcoin miners, and rebranded themselves as Bitcoin mining firms. They added their mined Bitcoin to their very own balance sheets and periodically sold some Bitcoin to generate extra cash. However, to support their purchases of more miners and data centers, Mara and Riot issued more shares and took on more debt.
Challenges Faced by Bitcoin Miners
At the top of September, Mara held 52,850 Bitcoins, which accounted for nearly two-thirds of its current enterprise value of $9.5 billion. Riot held 19,287 Bitcoins, which equals nearly 30% of its enterprise value of $7.7 billion. Those growing Bitcoin hoards are impressive, but some investors probably think it makes more sense to directly put money into Bitcoin as a substitute of those mining stocks. Bitcoin’s newer spot price ETFs make it even easier to try this. Mara and Riot are expanding their mining fleets to cover their costs, but high electricity costs are still consuming a big portion of their revenue.
The Impact of Bitcoin Halving on Miners
Bitcoin’s latest halving in 2024 made it twice as difficult for Mara and Riot to mine the identical amount of Bitcoin with the identical amount of electricity. That halving slowed Bitcoin’s supply growth and generated headwinds for the capital-intensive miners. Those halvings will occur every 4 years until the last Bitcoin is mined in 2140, and that rising difficulty could make it harder for pure play Bitcoin miners like Mara and Riot to sustain their businesses.
Will Bitcoin Miners Continue to Underperform?
It’s easy to see why Mara, Riot, and other Bitcoin miners underperformed Bitcoin. It doesn’t make an excessive amount of sense to take a position in a mining company — which must always buy more miners, expand its data centers, and grapple with volatile energy costs — as a substitute of Bitcoin or a spot price ETF. However, a few of these miners could pivot their huge fleets of miners to remotely process more machine learning and artificial intelligence (AI) tasks.
Conclusion
In conclusion, the underperformance of Bitcoin miners like Mara and Riot could be attributed to the challenges they face, including high electricity costs, the impact of Bitcoin halving, and the convenience of investing in Bitcoin directly through spot price ETFs. While some miners may attempt to pivot to other areas like AI, it’s likely that they may proceed to underperform Bitcoin. If you are bullish on Bitcoin’s future, it’s smarter to easily put money into the token as a substitute of those messier miners.
