Visa Cryptocurrency

Bitcoin Miners: A Study in Volatility

Bitcoin Miners: A Study in Volatility
Written by publishing team

Many investors are hesitant to buy cryptocurrencies outright, due to their unexpected price fluctuations. But if you think of Bitcoin (CRYPTO: BTC) As a model for massive volatility, you haven’t seen the Bitcoin miners’ charts yet. These volatile indicators can make hawkish growth equity investors blink and shiver. I can only recommend buying and holding cryptocurrency mining stocks if you don’t mind spending a lot of sleepless nights.

Buckle up and I’ll show you what I mean.

Let’s start with the basics

Here’s how five of the biggest names in bitcoin mining stack up in terms of traditional volatility metrics. To give you an idea of ​​the expected readings for each metric, I also include the Bitcoin values ​​themselves, a super-stable value stock, and an unpredictable meme stock.

protection

2021 back

3-Year Return (2019-2021)

beta

Standard deviation divided by the average price

Bitcoin

60.6%

1,120%

0.03

0.21

Digital Holdings Marathon (NASDAQ: MARA)

214.8%

2,170%

4.1

0.32

digital bit (Nasdaq: BTBT)

(72.3%)

(6.5%)

3.2

0.41

CleanSpark (Nasdaq: CLSK)

(67.2%)

(53.6%)

3.3

0.34

stable value: Visa (NYSE: V)

(0.9%)

1,080%

1.1

0.06

Exploding stock meme: jamstop (NYSE: GME)

687.6%

64.3%

-2.6

0.34

Price data from YCharts and Google Finance. Beta and standard deviation calculations for one year by the author.

The one- and three-year stock returns speak for themselves – some bitcoin miners are going up while others aren’t doing well. As a reference point, the Standard & Poor’s 500 (SNPINDEX: ^GSPC) The market index is up 27% in 2020 and 90% over the past three calendar years.

Beta values ​​measure how closely a security’s price moves correlate with a market index, typically the S&P 500. A value of 1.0 shows that a stock tends to move in the same direction and at a similar speed, compared to the chosen index. Our digital asset miners score very high here, which indicates amplifying market reactions to whatever moves the index. On the other hand, Bitcoin scores a near-perfect zero here. In other words, knowing what the stock market is doing on a daily basis isn’t going to help you see what’s going on with bitcoin prices in the same period — not at all.

Then there is the standard deviation. This statistical tool is a popular volatility measure that goes beyond the idea of ​​comparing a stock to a market index, and simply calculates how stable or unstable a chart is under your microscope. The basic standard deviation scale generates higher values ​​for higher-priced stocks, so I divide the deviation by the average price of each security in order to erase this bias. On this basis, it turns out that all miners are more volatile than Bitcoin.

Big monthly fluctuations

Looking at the same price data from a different angle, you should know that our bitcoin mining stocks tend to make huge moves on a monthly basis.

  • Marathon’s stock is up at least 20% (and as much as 99%) in six of the past 12 calendar months. It also recorded a decline of 20% or more in four months.
  • Bit Digital posted three full-month gains of at least 20%, including a 63% jump in October. The rest of the year showed negative monthly returns with declines of 20% or more on four occasions.
  • CleanSpark had just one big win in its 2021 monthly calendar, posting an 87% gain in October. Only two months made a 20% return but losses in seven 30-day periods fell in the 10%-20% range.
  • Let us keep you updated on the comparison points as well. Visa’s biggest one-month gain last year was 11.8% in December. The worst reading came from the 9.3% drop in January. This is an example of decency and calm. On the other hand, GameStop’s monthly results ranged from a 46.5% drop in February to a staggering 1,094% rise in January. So yes, there are even crazier schemes out there from crypto-mining professionals.

Why the marathon goes up while other miners are drowning

Digital Marathon stands out as a Bitcoin miner that outperforms the market. The company’s balance sheet looks strong, holding $33 million in cash, $74 million in cryptocurrency and no long-term debt at the end of the September 2021 quarter. The company has taken on some debt since then, borrowing $650 million in November for the purpose of mobilizing more cash machines. Bitcoin mining at its facilities in Montana and North Dakota.

At that moment, CleanSpark had $18 million in cash as well as $24 million in crypto balances. Bit Digital holds $26 million in cash and $35 million in digital assets at the same time. This company used to run its operations in Chinese data centers but began shipping its equipment to unspecified locations in North America when Chinese regulators cracked down on bitcoin mining in September last year. Neither Bit Digital nor CleanSpark has any long-term debt to talk about in early 2022.

Marathon is the largest bitcoin mining operation on this list, producing 1,098 bitcoins in the fourth quarter of 2021. The strong cash position also inspires investors to trust this company a bit more, given that Marathon should be able to weather a temporary dip in The cryptocurrency market through depends on this huge cash reserve.

CleanSpark generated nearly 600 bitcoins in the fourth quarter and has a much smaller cash cushion. Bit Digital can take a look at 248 newly minted bitcoins and limited cash reserves. I can’t blame investors in these companies for getting on their nerves. The distance between successful long-term mining operations and sudden bankruptcy is much smaller in these cases.

Image source: Getty Images.

All of these stocks are risky – including Marathon

Marathon Digital comes before the bundle in most of my analytics, but I’m not saying you should load this stock up right now. The stock’s high price also makes this index very expensive, trading at 32 times today’s trading turnover.

Don’t forget that even cash-rich companies in this category consistently report negative earnings and free cash flow, forcing them to generate enough cash to keep the lights on in other ways. Some are selling few of the bitcoins they generate, undermining the future profitability of their digital assets. They all also sell more shares as needed, which increases their number of stakes and dilutes the value of each existing share by at least 20% over the past year. This is not a convenient way for shareholders to manage the balance sheet.

And I can’t beat the possibility that the Bitcoin Foundation will eventually listen to critics of its environmental impact and switch to a different transaction settlement technology that does not involve mining. Ethereum (CRYPTO: ETH) It rolls out its own Ethereum 2.0 upgrade over the next two years, with ether mining phased out in the 2022 part of that process, and there’s no reason why Bitcoin can’t someday take the same approach. If and when that happens, bitcoin miners will stumble upon whatever digital assets they’ve created as well as a large and expensive pool of useless mining hardware.

So, Marathon is just as risky as its smaller competitors. I’d rather download the same bitcoin than any of these bitcoin mining professionals.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

About the author

publishing team