Bitcoin (BTC), the pioneer of cryptocurrencies, has been on an incredible journey since its inception. However, in recent times, the performance of BTC mining stocks has taken the spotlight. These mining stocks have managed to outpace the rise of Bitcoin itself, showcasing their potential as lucrative investment opportunities. In this article, we will explore the reasons behind the success of mining-related stocks and their relationship with the cryptocurrency industry.
Bitcoin: The Rise of Mining Stocks
Mining stocks have been on a remarkable upward trajectory, with their year-to-date returns far surpassing BTC’s rise of 84.61%. According to CoinGecko data, except for two underperforming mining firms, Argo Blockchain and TeraWulf, the average return of the top eleven public mining companies stands at an impressive 148.59%.
Leading the Gains on Bitcoin
Among these mining stocks, Marathon Digital Holdings and Cypher Mining have emerged as the frontrunners, boasting year-to-date gains of 120.67% and 356.00%, respectively. The success of these mining stocks can be attributed to their higher beta than BTC.
Exploring Beta
In investment terms, beta represents the volatility and magnitude of price movements in relation to a benchmark index, in this case, BTC. Mining stocks, with their higher beta, tend to exhibit increased volatility and move in the same direction as Bitcoin but with a greater magnitude.
During the bullish start of the year for Bitcoin, mining stocks frequently outperformed the cryptocurrency during positive rallies. Conversely, when BTC experienced a downturn in the third quarter, mining stocks retraced by an average of 50% compared to Bitcoin’s price drop of around 10%.
The Role of Ordinals
Apart from their higher beta, mining stocks have also benefited from the increase in Bitcoin mining revenue due to the usage of Ordinals. Ordinals are digital files stored on the smallest unit of BTC, known as a satoshi. They have introduced an NFT market on the Bitcoin blockchain, augmenting the profitability and demand for mining.
According to Rich Rines, an initial contributor to Core DAO, mining companies are capitalizing on the renewed excitement and market performance of Bitcoin. The introduction of ordinal inscriptions and BRC-20 tokens has further increased the profitability and demand for mining.
Bitcoin: Preparing for the Halving
Mining firms are also preparing for the upcoming halving event, expected to occur at the end of April, according to CoinWarz. The halving is a periodic event that reduces the reward miners receive for verifying transactions by 50% every four years. To maintain their revenue goals, miners need to expand their operations and increase computational power.
Core DAO’s Rines suggests that miners can benefit from the initial excitement around the halving as a critical milestone. However, they must also prepare for the reality of their rewards being abruptly cut in half, which will test their business models. The performance of mining companies leading up to the halving will depend on BTC’s price and the financial and operational preparedness of individual miners.
Perspectives on Mining Stocks
Oliver L. Velez, a crypto trader, predicts that mining stocks will continue underperforming due to reduced rewards and potential capitulation of less efficient miners. He also warns of further consolidation and optimization in the mining industry if BTC fails to reach $65,000 before the halving event.
Conclusion
Bitcoin mining stocks have outpaced Bitcoin’s growth, presenting lucrative investment opportunities due to higher beta, increased mining revenue, and the upcoming halving event. As the mining industry evolves, investors and miners must stay vigilant and prepared for challenges. The performance of mining stocks will depend on Bitcoin’s price trajectory and individual miners’ ability to navigate the changing landscape.
