Are Bitcoin Mining Stocks Worth The Risk?
If you’re looking to dabble in bitcoin mining stocks, this chart can give you some idea of their risk versus bitcoin. It shows what would’ve happened if you’d invested $100 in the Valkyrie Bitcoin Miners ETF (WGMI, green) when it first started trading on the Nasdaq in February of 2022. Compare that with the “steadier” pure bitcoin investment in blue.
Bitcoin mining stocks are like bitcoin on leverage.
There isn’t much history to go on, but the chart below gives us some insight into how bitcoin mining stocks perform versus bitcoin itself. When bitcoin is dropping, miners tend to drop harder. And when bitcoin is rising, they can see face-melting rallies.
This makes sense. Bitcoin mining companies earn their revenue in bitcoin. So when the bitcoin price moves up or down, it can have a major impact on their profit margins. After all, miners have to sell bitcoin to pay their bills in regular currencies.
You’ve also got to factor in other “company-specific” risks of the miners themselves. For example, their financial health, management capability, and market position. That said, investing in a diversified bitcoin mining ETF like WGMI does spread those risks to some degree.
So are bitcoin miners worth the risk?
Last year WGMI returned just under 290% to investors, while bitcoin was slower and steadier with about 155%. If you’re into taking risks, that might be your hook to jump into bitcoin mining stocks (assuming you manage to get in and out at the right time).
But if you’re thinking longer term, consider the chart below. It shows a $100 investment in the iShares MSCI Global Gold Miners ETF (RING, white) since it launched in 2012. As you can see, you’d have been better off just holding gold itself for the past decade.
So if bitcoin is digital gold, it’s hard to see bitcoin mining stocks beating it in the long run. The commodity might have gone digital, but the end result will probably be the same.
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