Bitcoin Mining Stock Breakout? WGMI ETF Chart Analysis
Bitcoin mining stocks could be on the verge of a major breakout. The Valkyrie Bitcoin Miners ETF (ticker: WGMI) has been building a giant ascending triangle pattern for almost a year – and that’s now getting close to a resolution.
Video version of this post
Quick overview of the WGMI ETF
WGMI invests in about 30 companies that make money from the bitcoin mining industry. The exchange-traded fund holds bitcoin mining stocks (like Argo Blockchain, Cleanspark, and Terawulf) that trade on major stock markets. It also holds invests in companies that profit from bitcoin mining less directly (like data center providers and mining hardware makers). WGMI began trading in February 2022, when it reached its highest-ever price of $30.51. It traded south quickly after that (along with bitcoin and the rest of the crypto market), bottoming at $4.07 that December.
WGMI’s ascending triangle explained
But WGMI investors have seen better days since then. The ETF is now trading near $18 a share. It’s tested the $18-$22 region (yellow) multiple times since July last year, while making higher lows (blue) in the process. That’s created a giant ascending triangle pattern. The chart below connects end-of-week prices for WGMI, to cut out the short-term noise and focus on the longer-term trade setup.
Trading textbooks class ascending triangles as bullish patterns. They have a higher probability (not guarantee) of breaking to the upside than the downside.
And that makes sense when you think about what the pattern says about buyer and seller behavior. The highs are about the same: sellers keep defending the $18-$22 resistance ceiling by selling WGMI shares within the yellow rectangle. But each time they defend that ceiling, they push the price down with less strength. Hence, the lows keep getting higher. So the more times buyers try to bash through that ceiling, the more likely they are to break it and force the price above it.
What about the fundamentals of bitcoin mining stocks?
The fourth bitcoin halving happened in April. It halved the bitcoin reward miners get for processing a transaction block. Put another way, miners now spend roughly double on electricity to harvest the same number of bitcoins. So all else being equal, that makes mining businesses less profitable.
But not all bitcoin mining stocks are created equal. The financially weaker miners have switched off their machines and left the scene. That’s opening the door for stronger miners to get even stronger. Remember, the mining stocks of WGMI trade publicly, so they generally have above-average financial clout (compared to smaller, unlisted bitcoin mining companies).
What’s more, the Bitcoin Production Cost Indicator by Capriole Investments (below) shows that miners banked the most profits several months after each bitcoin halving in the past. They had their best times about nine months after the 2016 halving (yellow), and six months after the 2020 halving (blue). Those lasted about a year and a half in each case. The green line is what miners sell their coins for, the purple line is the total cost to mine one bitcoin (electricity plus operations), and the red line is the electricity cost on its own. The higher the green line goes above the purple line, the more profit miners book per bitcoin on average.
Digging deeper: What might this mean for bitcoin’s price?
Past bitcoin halvings have led to higher bitcoin prices. Halvings make new bitcoins harder to mine, making the digital commodity scarcer (all else being equal). According to the Bitcoin Production Cost Indicator, the total cost to mine a bitcoin today is around $100,000. So, if WGMI does break higher from here, it would imply that the market thinks bitcoin’s price should also be much higher. Incidentally, bitcoin’s 0.618 Fibonacci extension target for this bull run is just above $100,000 a coin. I wrote more about that back in March.
Liked this analysis? Sign up below to get more of it in your inbox (all free).
