The public cryptocurrency mining market is more active and lucrative than ever. In this livestream, Compass explores the state of the public mining markets focusing on mining ETFs and SPACs. Two mining-related ETF and index managers join the stream.
Both guests share their perspectives on the health or froth of the current mining market. They also describe each of their mining investment vehicles and the benefits of mining ETFs couple with the latest mining SPACs.
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Watch previous livestreams here.
- Wes Fulford, CEO at Viridi Funds: He was an investment banker for 12 years. He got into bitcoin in 2016 and took over as CEO of Bitfarms. He currently runs Viridi funds.
- David Lawant, Research Director at Bitwise: He is the director research at Bitwise. Bitwise serves professional investors. He previously worked at a sellside equity research analyst. He joined Bitwise in early 2020. Bitwise has an index that tracks the crypto equities market.
Outlook on public mining market (timestamp)
- Many investors want indirect exposure to cryptocurrency.
- Crypto related equities are highly correlated to cryptocurrencies themselves.
- If crypto was a sector of the S&P500, 9 of the 10 largest companies would be crypto companies.
- Cryptocurrency companies are a very profitable industry vs. big tech start-ups, this is attractive to investors.
- Public miners originally served as a proxy to BTC exposure.
- Research analysts are trying to value companies based on multiples such as EV/megawatt, revenue multiples, and cash flow analysis.
- After Coinbase IPO, some capital flowed out of public miners and into the Coinbase stock.
Should mining companies go public? (timestamp)
- Wes: they shouldn’t go public unless they need liquidity or are required to pursue a listing as mentioned in their private documents.
- Capital markets are robust, pursing a listing can help finance operations and grow the business’s cashflow.
- Mining is capital intensive, going to public markets makes expansion and equipment acquisition easier.
Bitwise index methodology (timestamp)
- Bitwise index is market cap weighted to represent the total market.
- Investors will have exposure to 7 miners through the Bitwise index.
- The Bitwise index has two sleeves: pure exposure companies (85% of the index) and ancillary exposure (15% exposure).
- Ancillary exposure: companies involved in crypto but do not use crypto as a main revenue generation activity (ex. Square).
- Pure exposure: 75% of company revenue companies from crypto activities.
What does the RIGZ strategy look like? (timestamp)
- RIGZ is actively managed.
- No position will exceed 25% of the fund, the sum of 5% positions can not exceed 50% of total holdings.
- RIGZ manages positions in the fund on a forward looking basis because companies will look different 12 months from now.
Thoughts on state of crypto ETFs (timestamp)
- Bitcoin futures ETF is just an option for people desiring crypto exposure.
- Bitcoin futures ETF is financially settled, a derivative on top of ETF.
- A futures ETF doesn’t mean actually buying spot bitcoin to back the product.
- Wes: expecting an approval for spot ETF in the near term in the United States.
- Professional investors gravitate towards investing through a ticker vs spot bitcoin.
- 70% of professional investors prefer an ETF vs buying spot.
- Futures ETF comes with carrying costs, they may not track the price of spot bitcoin well.
How should pleb miners evaluate mining equities? (timestamp)
- Bitcoin miners are easier to value vs. bitcoin.
- Analysis techniques include: Multiples approach and DCF (discounted cash flows) approach.
- EV/megawatt and EV/ hash rate are common used metrics to value bitcoin miners.
- As mining hardware production increases and hash rate increases, the size and value of these public mining companies will increase.
- It makes sense for miners to be listed on the public markets, it’s not surprising seeing U.S. miners take advantage of this.
- Many miners continued ramping up capacity after the China ban.
Has the public mining market surprised you at all? (timestamp)
- Making trades involves intensive research and analysis, that even includes Reddit forums.
- Benchmarking a miner’s performance against a digital asset is not the best way to value the company because as hash rate increases, miner revenue will decrease and a mining company will underperform bitcoin.
Anticipated events and expectations before the next having (timestamp)
- Wes: There is enough eyes on the market that it is reasonable to assume that there will be more publicly listed miners, I think we see 15-20 new listings.
- David: There may be more M&A activity and an emergence of new mining hubs in South America.