Buy Crypto Or Get Indirect Exposure? (Part 1)

Blockchain tech at the core of the digital space presents itself as both the innovation and the hassle for those who struggle with technologies. There have been alternative ways to get indirect exposure to cryptocurrencies without going through the whole process of setting up your own wallet, getting on-ramp, and purchasing Bitcoin for instance. The most popular one recently is via spot Bitcoin ETFs, but the question remains: should we opt for those alternatives or is it better to own your cryptocurrencies?

Viva La Crypto

The ultimate idea behind blockchain and the inception of Bitcoin is, first and foremost, freedom. Freedom to access personal holdings without relying on any third party, freedom to own any type of assets regardless of place and time limitations, and freedom to attach a value to any cryptocurrency. People used to jeer at the mere mention of Bitcoin in the late 2000s-early 2010s, but look at us now: over US$1 trillion in total be859bc7-d249-44f6-af7f-a16ffd805ac1 cap, Bitcoin is now the second largest ETF commodity in the U.S. (with Larry Fink having a refreshed perspective on Bitcoin) and countries in the race to be global and regional crypto hubs. It's been a long-winded journey from a joke to the emerging asset class, and it's mind-boggling to say cryptocurrencies aren't here to stay.

Unclear Regulations As One Major Entry Barrier

However, only around 1.3% of the world's population owns Bitcoin, a real modest number with regards to the recent movement by financial institutions. It's because up until now, countries in the Latin-America and Asia seem to be more open to cryptocurrencies than their peers in Europe and North America. The land of dreams, ironically, was among the most hostile towards blockchain and crypto, with several cases between the U.S. SEC and crypto companies going on for years. Financial markets need an encouraging sign from lawmakers, and the average people almost always follow the crowd to stay out of any potential trouble. Therefore, once again, we want to celebrate a major win for the entire space: DDD-Day: Bitcoin ETF Is Approved.

Alternative Option 1: Bitcoin Mining Stocks (P1)

Bitcoin ETFs are not the only options for those who are more traditional-minded. In the first part of this series, let's talk about Bitcoin mining stocks as a salute to one of crypto's forefronts. Keep in mind that Bitcoin miners tend to cover other sectors as well, for example, energy, or diversify into other business areas rather than focusing solely on Bitcoin mining.

Bitcoin mining stocks had a brilliant 2023 with an average return of 344% compared to NASDAQ 100's 55%. The best performer of the year is Marathon Digital Holdings Inc. (NASDAQ:MARA), whose shares ended the year with a 591% increase. Marathon currently owns 15,174 Bitcoin or US$610 million as of today (January 26, 2024 ) and is the biggest Bitcoin holder among publicly listed miners in the U.S.

Almost all Bitcoin miners outperformed NASDAQ 100 (100 largest tech companies) in 2023, especially in July thanks to the market's bullish sentiment on the SEC's approval of spot Bitcoin ETFs. They even outperformed Bitcoin itself, however at the costs of higher volatility than the flagship cryptocurrency.

How is that possible then, if the 13 mentioned miners hold at least 40,000 Bitcoin or 0.2% Bitcoin's total supply and are constantly creating new ones? The answer lies in efficiency. Bitcoin undergoes halving every four years, meaning the numbers of Bitcoin to be mined will reduce by half after each halving event. Bitcoin miners are the main target of the Bitcoin halving function: they have to compete with newer, more efficient mining rigs, which of course means higher costs, to survive the halving, let alone keep generating profits as Bitcoin has become extremely volatile after spot ETF launch.

The chart above shows Bitcoin mining stocks all dipping in red since the approval and first trading day of spot Bitcoin ETFs (January 10-11). Prices reduced by half can also be a result of capital reallocation from investors; after all, spot Bitcoin ETFs provide exposure to Bitcoin without taking into consideration revenues, cash flows, and expenses of miners. If you are to purchase Bitcoin mining stocks, brace yourself for a rollercoaster of emotions, at least into Q2 this year.

To be discussed next are the Bitcoin mining landscape, an introduction to the best Bitcoin mining stocks, and what to expect as the fourth Bitcoin halving is drawing near.

Disclaimer: The opinions expressed in this article are for informational purposes only. This article does not constitute an endorsement of any of the products and services discussed or investment, financial, or trading advice. Qualified professionals should be consulted prior to making financial decisions.