Why Bitcoin Mining Stocks Will Thrive.
With the introduction of Bitcoin Exchange-Traded Funds (ETFs), the investment landscape has witnessed substantial inflows into the Bitcoin ETF sector, setting new records. Many anticipated that this surge would also drive Bitcoin mining stocks to new highs. However, contrary to expectations, mining stocks did not rocket, leading some pessimists to speculate about the demise of the Bitcoin mining equity narrative.
Hence, I recently tweeted to reassure individuals about the potential of Bitcoin mining equities, and it gained traction, prompting me to elaborate further in this blog post. Below I’ll delve into the main reason behind this phenomenon and explain why I believe Bitcoin mining stocks will shine in the future.
The primary reason for this discrepancy is investors’ aversion to uncertainty. With the Bitcoin halving event looming approximately 50 days away, a once-in-four-years occurrence, uncertainty prevails regarding which miners will weather the storm and survive the impending revenue halving. Additionally, certain “financial experts” have exacerbated concerns by disseminating shallow research with unsubstantiated claims, suggesting that some miners may only have months of viability remaining. Consequently, investors seek tangible reassurances amidst this uncertainty and are diverting capital to the perceived safety of Bitcoin ETFs.
However, historical precedent suggests a different trajectory. Examining the performance of miners six months before and eighteen months after the third halving in May 2020, during a time when several miners were already publicly listed, reveals a pattern. While miners underperformed or remained on par with Bitcoin in the months leading up to the halving, they outperformed it during the subsequent “Bitcoin summer” bull run.
Mark Twain once said, “History does not repeat itself, but it often rhymes.” I am convinced that this historical pattern will hold true for Bitcoin mining stocks during this pre/post halving. Here are my three key reasons why:
Firstly, the post-halving period will distinguish clear winners from losers. Within a couple of months following the halving, the settling of the new hash rate and the resilience of miners will become evident. Miners with the lowest energy consumption and the newest fleet, or a combination of both, will emerge as frontrunners, while those with high energy costs and inefficient fleets will struggle to survive. This clarity will attract investors to the winners, driving further industry consolidation.
Secondly, the recognition of Bitcoin mining as the foundational pillar of the Bitcoin blockchain, crucial for transaction validation and security, will bolster investor confidence. Without proof of work and Bitcoin mining, there would be no Bitcoin, Bitcoin ETFs, or Bitcoin transactions, jeopardizing the entire ecosystem’s integrity and functionality, thereby highlighting the indispensable role miners play in sustaining the network’s reliability and viability for all participants, from investors to users alike. It wouldn’t be unexpected if Blackrock and Fidelity, recognizing the above, were to introduce Bitcoin Mining ETFs within the next six months.
Lastly and more importantly, the rapid escalation of transaction fees is poised to serve as a significant incentive for Bitcoin miners. As Bitcoin blockchain usage continues to expand and new use cases emerge, transaction fees become an increasingly vital component of miner incentives. The introduction of Ordinals and BRC-20 tokens adds to the potential for increased fees. Fidelity Digital Asset’s research paper highlights a remarkable surge, consistently breaking records in recent months, even outside of historical bull runs when transaction fees typically peak. This underscores the growing importance of transaction fees, which are expected to become even more significant in the future. Furthermore, the proliferation of the Lightning Network for everyday payments and micropayments for IoT devices is anticipated to further amplify transaction fee revenues. As a result, Bitcoin miners stand to be the primary beneficiaries of this fee surge, solidifying their role as key players in the ecosystem and reinforcing the sustainability of the Bitcoin network.
In conclusion, the current lull in publicly traded Bitcoin miners is a temporary setback, anticipated amidst the halving event. As the dust settles, robust miners will shine, and investors will flock to the sector. An overlooked massive upside lies in the potential of transaction fees, presenting a lucrative opportunity for those who recognize it. For those seeking to position themselves advantageously in light of this potential, the time for action is ripe. When considering which miners offer the most promising upside, it’s advisable to heed the insights of respected voices such as @Mikealfred and @MortensenBach. These individuals have demonstrated a depth of knowledge and diligence in their assessments, distinguishing them from the vast majority of FinTwit commentators.
Good luck !
