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Over the past year, the surge in digital currencies represented by Bitcoin has left “outsiders” helpless. However, who would have thought that the crypto mining stocks behind Bitcoin would far outperform the latter.
The huge temptation brought by the rise of Bitcoin has led more and more US-listed companies to buy mining machines and flock to the crypto market, relying on cheap electricity and professional mining hardware to mine Bitcoin for profit.
According to research by FundStrat, cryptocurrency mining stocks have outperformed Bitcoin over the past year: for every 1% increase in Bitcoin prices, crypto mining stocks have risen by an average of 2.5%.
The "modern digital gold rush" sparked by digital currencies such as Bitcoin means that crypto mining stocks may rise further.
However, FundStrat also said that mining company stocks may be a riskier investment than Bitcoin. When the cryptocurrency enters a bear market cycle, mining stocks are expected to fall more than Bitcoin.
Miners' enthusiasm for "mining" has also triggered a "graphics card war" between miners and gamers.
Crazy Miners - "High Beta" Bitcoin
Leor Shimron, vice president of digital asset strategy at Fundstrat Global Advisors, likened the miners to a “high beta” of Bitcoin in a report.
These mining companies are quite young and have little track record, and some have entered the market in a roundabout way. For example, Riot Blockchain, a large-scale mining company, was scrutinized by regulators at the beginning of its establishment and its operations have been loss-making.
However, Shimron said that during the Bitcoin downturn, they made significant investments in hardware and facilities, helping them to "stand out" in the current Bitcoin bull run and their market value now exceeds $1 billion.
According to his analysis, in the recent cryptocurrency bull market over the past year, Bitcoin has risen by 900%, while the average return for mining companies has been as high as 5,000%.
Fundstrat evaluated four publicly traded mining companies with a market value of more than $1 billion, including two Nasdaq-listed companies, Riot Blockchain and Marathon Digital Holdings, and two over-the-counter stocks, Hive Blockchain and Hut 8. In Shimron’s words, Bitcoin miners form the core backbone of the Bitcoin blockchain as they “consume electricity to solve cryptographic puzzles by guessing and then verifying” and receive income in the form of mined Bitcoins.
According to Shimron’s analysis, the Beta values of these cryptocurrency mining companies show that for every 1% change in cryptocurrency prices, the mining companies generate a 2.5% return.
While there isn’t enough historical data to draw conclusions, the performance of cryptocurrency mining companies is clearly linked to the price of Bitcoin, with Bitcoin’s trading conditions amplifying both its upside and downside.
Shimron attributed miners’ profitability to cheap electricity and specialized mining hardware.
As the price of Bitcoin rises, miners build new mining rigs or upgrade their hardware with more powerful and efficient machines.
Driving force behind the rise <br />There is no doubt that the rising price of Bitcoin has driven the development of miners.
Shimron analyzed that this bull market may continue in 2021, driven by macroeconomic and demographic factors.
Concerns about inflation supported Bitcoin’s price, with the Federal Reserve signaling that it wants to maintain its dovish policy through 2023.
Another driver comes from demographics, with Shimron noting that younger investors are more inclined to use Bitcoin or other digital currencies rather than gold and commodities.
Not long ago, Morgan Stanley became the first major Wall Street bank to offer Bitcoin investing to its wealthy clients.
Shimron sees miners as fundamental to the cryptocurrency sector. “The top companies are here to stay, and the economies of scale in equipment investment make it difficult for new entrants to compete,” he said.
As for investment strategy, Shimron prefers to trade Bitcoin miners during a bull run rather than taking them as a long-term investment.
The battle of graphics cards <br />No matter what you say, the huge amount of electricity consumed by miners in "mining" has become one of the biggest doubts from the outside world. The long-term high-load operation of "mining" equipment generally leads to a short lifespan, which has set off a "graphics card war" between miners and gamers.
Graphics cards mainly complete repetitive and simple tasks assigned by the CPU. Mining is to use the chip to perform a calculation related to random numbers, and then obtain the answer in exchange for virtual currency rewards. This calculation is also repetitive and uncomplicated. Graphics cards coincide with the "solving" requirements of mining algorithms and are good mining tools.
The wealthy miners' wanton plundering of high-end graphics cards has caused strong dissatisfaction among gamers.
At present, the Nvidia RTX 30 series cards that are popular among miners are in short supply. The quoted price of RTX 3070 is 8,500 yuan, which is double the price.
In response, Nvidia had to take two major measures to reconcile the conflict between miners and gamers.
First, NVIDIA announced that it would limit the mining capacity of the ForceRTX 3060, which will be officially released on February 25, in order to "dissuade" miners from purchasing this graphics card; second, the company launched a series of professional mining cards in an attempt to remove miners from the gamers' track.
However, professional mining machines are expensive. For example, the price of the Ethereum mining machine A10 Pro has now climbed to more than 120,000 yuan, four times the original price.
In addition, professional mining machines only have the single attribute of mining. Once a mining accident occurs (coin price plummets), the mining machines will become waste.
It can be seen from this that whether miners will buy into the professional mining cards launched by NVIDIA is still a question. |
