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Bitcoin Miners in 2024: Impact of Bitcoin ETFs & Halving

January 31, 2024

Read Time 3 MIN

Bitcoin turned positive YTD by January 29th after an initial drop, while miners are still down 20%, hinting at potential opportunities.

Bitcoin is now positive YTD as of January 29th after initially dropping 20% in the aftermath of the Bitcoin ETF launches. Most Bitcoin miners, on the other hand, are still down 20% year-to-date. Is this an opportunity?

Impact of the New Spot Bitcoin ETFs

The recent launch of multiple spot bitcoin ETFs has brought a dual effect to the asset. They've democratized access to bitcoin, allowing a wider range of investors to participate without direct digital asset ownership. However, this created a headwind for the price of bitcoin due to increased market liquidity and one-way investor sentiment leading into the event.

Historically, there has been a strong correlation between the price of bitcoin and the valuations of bitcoin mining companies. Bull market cycles in bitcoin typically provide a tailwind for mining companies as their margins increase on every mined coin. However, the opposite is true when prices become depressed, leading to more limited profitability. This pattern outlines the high beta between the asset itself and the companies who mine it.

If past patterns hold and Bitcoin rallies after the halving and the US election, the miners’ recent underperformance could be an opportunity.

The Bitcoin Halving Effect: Historical Analysis

The anticipated Bitcoin halving, likely to take place around April 20th, is a pivotal event. Previous halvings in 2012, 2016, and 2020 preceded significant bull runs in bitcoin's price, as Bitcoin’s new issuance is cut by 50% After the 2016 halving, bitcoin's price surged from around $650 to approximately $20,000 by the end of 2017. Similarly, post the 2020 halving, bitcoin witnessed a climb from about $8,800 to an all-time high near $69,000 in November 2021. This historical pattern suggests that the halving could lead to a decrease in supply and potential price appreciation.

Bitcoin Price and Timing of Previous Halvings

Bitcoin Price and Timing of Previous Halvings

Source: VanEck research as of 1/22/2024. Past performance is not indicative of future results. Not intended as a recommendation to buy or sell any of the names mentioned herein.

Opportunity in the Volatility

Considering the historical data and Bitcoin miners’ high volatility, the oversold equities may draw buyers looking for beta to Bitcoin’s recovery. As of the last quarter, bitcoin mining companies reported increased operational efficiency and growth in mining capacity, yet their valuations did not reflect these improvements, largely due to the top-down market sentiment and concerns about post-halving profitability. In the 2020 cycle, the largest publicly traded Bitcoin miners underperformed the Bitcoin price materially in the year prior to the halving, bottomed in relative terms the week before the event, and then rallied more than 5000% vs. Bitcoin’s ~660% for the rest of the cycle.

MVDAPPTR Holding's Revenues and Market Cap Over Time

MVDAPPTR Holding's Revenues and Market Cap Over Time

Source: Factset as of 12/2023. Past performance is not indicative of future results. Not intended as a recommendation to buy or sell any of the names mentioned herein.

After the Bitcoin halving in April, it is likely that clarity will emerge about which miners will be profitable. But stocks often move in advance of fundamentals. One way for investors to access this opportunity in a diversified way is with VanEck Digital Transformation ETF (DAPP). DAPP is a passive product that tracks the MVIS Global Digital Assets Equity Index. The index targets the 25 largest, most liquid companies in the industry that drive 50% or more of their revenue from digital assets operations. 

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