Diversification Key to Long Term Outlook for Bitcoin Miners

Among individual stocks, they don’t get much more crypto-correlated than bitcoin miners. As such, it is not surprising that these stocks were rejected in 2022.

Even if bitcoin and other digital currencies rebound in early 2023, the asset class is still in a fragile place, causing many miners to rethink their business models. Should these companies prove to be successful in the diversification efforts for business models, exchange-traded funds such as e.g Invesco Alerian Galaxy Crypto Economy ETF (SATO) could be useful.

SATO tracks the Alerian Galaxy Global Cryptocurrency-Focused Blockchain Equity, Trusts and ETPs Index – a benchmark index that is home to a number of bitcoin miners. Several of SATO’s components are already taking steps to prove to investors that these companies are about much more than crypto mining. Take the case of Riot Platforms (NASDAQ: RIOT ), SATO’s fifth largest holding with a weight of 4.63%. That company changed its name as a sign of the diversification effort.

“It’s not the only firm to change its name. Over the past year, miners have worked to diversify their revenue streams into other products and services using energy-intensive data centers. Some did so in response to brutal market conditions, while others took steps to prepare during a period of decline when business was still going well,” Eliza Gkritsi reported for CoinDesk.

As CoinDesk points out, bitcoin can be compared to mining traditional commodities. It is capital intensive and there is a limited amount of product to be extracted. Although the total amount of, say, gold or silver reserves in the world is not known beyond a shadow of a doubt, it is not up for debate that there are only about 2 million more bitcoins left to be mined.

Add to that, bitcoin mining becomes more difficult and expensive as more supply is mined. These are compelling reasons for miners, including SATO member firms, to add new sources to their revenue streams.

Count Hut 8 Mining (HUT) and Hive Blockchain Technologies (HIVE) among the other SATO components that extend beyond crypto mining to add new ventures. As for Hive, the company is looking to expand its cloud footprint.

Hive’s “cloud offering is 25 times more profitable than mining, measured in dollars per electricity consumption, given current market conditions, has an annual revenue of $1 million on a running basis, the company said on Tuesday. Hive has a fleet of 38,000 GPUs and currently uses 450 of them for their cloud proof of concept, which uses about 80 kilowatts (KW) to earn $3,500 per day,” according to CoinDesk.

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The opinions and forecasts expressed herein are solely those of Tom Lydon and may not materialize. Information on this website should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.