- There is a wide variety of financial products that allow the user to be exposed to Bitcoin (BTC) without having to own it.
- An investment that offers indirect exposure to Bitcoin is ideal for those who do not want to have to interact with the cryptocurrency market directly.
- BTC shares are represented by companies that are dedicated to mining Bitcoin and are listed on the stock exchange and although they are an interesting option, the risks can be even higher.
Currently, with a significant expansion of the markets, it could be said that there is a wide variety of investment strategies, which are included in two sectors: The traditional one and the cryptocurrencies.
Investors have a long list of strategy options that can be tailored to their particular needs and preferences. For example, the investor’s risk appetite, preference for technology or commodity, and even adjusted to their knowledge and experience.
In particular, investing in cryptocurrencies could be said to entail a steep learning curve, that is, it involves the understanding of significant content in a short period of time. In fact, a person with a background in traditional investment and finance is not guaranteed to fully understand the cryptocurrency market.
And it is that, When investing in Bitcoin (BTC), you should know concepts such as mining, blockchain, centralized crypto exchanges (CEX), decentralized crypto exchanges (DEX), cryptocurrency wallets and how to keep them safe, among others..
However, There is a way in which an investor can get exposure to Bitcoin (BTC) without having to worry about the technicalities of the cryptocurrency market. One of them is investing in BTC mining stocks. Below you will find all the details.
Cryptocurrencies vs. Actions
Before you can understand what Bitcoin mining stocks are, you need to understand what stocks are and how they differ from cryptocurrencies.
Cryptocurrencies and stocks are completely different investment assets. Stocks represent participation in a public company; that is, each share is a percentage of the ownership of a company, while a cryptocurrency is a digital asset, that is, it does not have a physical component.
Henceas investment assets, differ in terms of volatility, source of earnings, regulation, and exposure to scams. However, although this topic is still being debated, for many it is not about determining in a general way which of the two types of assets is better than the other.
The question really is: Which form of investment aligns with your goals? Therefore, determining which is better will depend on the personal reasons of each investor.
BTC mining stocks? What are they?
For some, the easiest option to get exposed to cryptocurrencies without incurring in the technicalities of the market is by acquiring shares in a company whose future is connected to the development of Bitcoin.
In this case, BTC shares are represented by companies that are engaged in mining Bitcoin and are listed on the stock exchange. This type of investment offers liquid exposure to Bitcoin in your traditional stock portfolio.
Basically, you get the best of all worlds: exposure to Bitcoin with the comfort that the traditional market offers for some.
In particular, BTC mining companies derive part of their value from the price of the asset they mine. In this way, in general, when the price of Bitcoin increases, the share price of mining companies tends to increase to a greater extent. However, this is also true for downtrends in the crypto market.
In addition to the price of Bitcoin, there are other factors that go into the value of the shares of these companies, such as the amount of BTC you own, the volumes of miners, the cost of mining, investment and future mining plans.
Correlation Between Bitcoin Price and Mining Stocks
Since mining stocks are thought of as exposure to Bitcoin, it is essential to know how the correlation between these two assets works.
as is evidentbeing a mining company, most of their income is from Bitcoin mining, and they generally tend to keep as much BTC in their balances as possible. Consequently, the company’s revenue is closely related to the price of Bitcoin.
But why would the price of mining stocks tend to increase or decrease in greater proportion than the price of Bitcoin? because in the end the operation of the company in general depends on the behavior of this asset.
For example, in the commodity mining industry, investors can assess a miner’s enterprise value per unit of reserve with the commodity’s spot price. In general, the enterprise value must be less than that of the raw material because the company must bear the operating and capital expenses.
Additionally, BTC miners are affected by network behavior i.e. mining difficulty and hash rate. Depending on these metrics, the daily income from mining transactions decreases.
By last, the valuation of a mining company’s share depends directly on its growth plans; that is, whether or not you plan to expand your mining rig or, for example, how you plan to deal with electricity costs to stay profitable.
volatility is higher
This is how the shares of Bitcoin mining companies have proven to be more volatile, even more than the cryptocurrency itself in many cases.
Obviously, volatility does not have to be a negative or a positive thing. This feature allows investors to get great returns, but also losses if they are not careful. So if, Mining stocks are an ideal option for those who want to be exposed to Bitcoin volatility without having to deal with the technicalities. However, like any other investment asset, it is not ideal for everyone.
Some Popular Mining Stocks
- Marathon Digital Holding (MARA): It is one of the largest mining companies in America and has a market capitalization of almost 3 billion US dollars. The company expects its hash rate to be 13.3 EH/s by mid-2022 and 23.3 EH/s by early 2023. Currently, their holdings in Bitcoin they amount to 9,673 BTC. It is priced at $15.78 US dollars per share.
- Riot Blockchain (RIOT). This mining company in April 2022 produced 508 BTC, an increase in production of 150% in one year. And, by April 30, 2022, he had 6,320 BTC in his holdings. So far, it has unfolded approximately 46,375 miners, with a hash rate of 4.7 EH/s. Its share price is $10.35 US dollars.
- Hive Blockchain Technologies (HVBTF): Hive Blockchain produced 268.8 BTC in April 2022, and by the end of the month, had a hash rate of 2.15 EH/s. But, in addition to BTC, this company also produced 2,537 ETH. It has a price per share of $1.47 US dollars
final thoughts
In the financial market there is an important diversity of investment strategies. Therefore, people can find the option that best suits their needs and preferences.
So if cryptocurrencies are volatile, mining company shares are even more so. This implies that an investor who selects this type of stock must have the ability to tolerate high degrees of volatility.
Some considerations when buying any type of action in the traditional market are:
- You require an account in a broker.
- In general, investment strategies with stocks are of the type “buy and hold”; that is, when an investor acquires a share, he does so thinking of keeping it for many years. So it is not advisable to buy stocks in the belief that they might perform well in the coming weeks or months.
- Diversify your portfolio. This advice is applicable to any type of investment that is made, whether in the crypto market or not. Why? Because by diversifying your possibilities, the chances of losing money may be reduced. And, for this, it is recommended to buy some shares of different types.
- How much to buy? Every person who thinks about investing faces this question. The answer depends on the capital available to be risked. One piece of advice that applies pretty well to everyone is: Don’t invest more than you’re willing to lose!
- Research the company carefully. What are your plans for the future? What has been the performance of the company in recent months? What do the experts say? Is the share price overvalued or undervalued? Answering these types of questions is essential.
And finally, it is not possible to give a closed answer to the question of which is better. Bitcoin is ideal for those who are confident in the potential of the leading cryptocurrency, while Bitcoin mining stocks are ideal for those who are confident in the future of cryptocurrency mining. Therefore, they are fundamentally two different assets and the decision on which one to invest in is individual.
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