Spot bitcoin ETFs represent long-term competition for publicly traded cryptocurrency miners, according to a Galaxy Research report published on Wednesday.
Before these ETFs were approved, public mining stocks were one of the few ways investors could get exposure to bitcoin price increases, Galaxy analysts said.
However, with more sophisticated investors entering the market, miners must now demonstrate their earnings potential to effectively compete with spot Bitcoin investments.
“In the short term, ETF approval will likely be a consideration for investors when evaluating whether to invest in public mining stocks,” analysts led by Galaxy Mining Vice President Brandon Bailey wrote.
“Retail investors will likely continue to view and trade miners as a long-term Bitcoin trade with ETFs as the primary benchmark for performance,” they added.
Institutions are likely to buy Bitcoin ETFs and short mining stocks
Meanwhile, in the short term, institutions appear to favor bitcoin ETFs over mining stocks. The team noted that this trend has already begun to emerge from the beginning of 2024.
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Bitcoin ETFs provide a regulated way for investors to benefit from Bitcoin's potential without directly owning the cryptocurrency. As these ETFs gain popularity, this may impact the demand for Bitcoin itself.
The Galaxy report highlighted that this shift in demand may impact cryptocurrency miners. It can particularly affect variables such as Bitcoin value, mining profitability, and market sentiment. The team suggested looking at how much money mining companies can make regardless of Bitcoin price fluctuations.
Mining companies are facing pressure to dilute their shares
The team also noted that mining companies' share prices may fall if they decide to raise money by issuing more shares. This is especially if investors believe they can get better returns by investing in ETFs rather than investing in the company directly.
“However, Bitcoin miners can benefit from inclusion in a wider range of ETFs and financing products as well as research and hedging as those benefits outweigh some of the downsides of increased competition from Bitcoin ETFs.”
In recent years, as the cryptocurrency market has contracted, miners have faced significant difficulties in maintaining profitability, leading to a new focus on hedging options.
Bitcoin miners have explored these strategies to protect their revenues from the unpredictability of the cryptocurrency market. For example, GSR has launched hedging products aimed at providing miners with a more reliable source of income.
