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The stigma associated with investing directly in Bitcoin has gradually faded over the last few years. Previously, most accredited investors considered direct exposure to Bitcoin to be dangerous. They were concerned that the volatility of cryptocurrencies was far exceeding their risk tolerance.
However, there are now other methods to invest in Bitcoin, including through investment vehicles like as GBTC or direct exposure through centralised or decentralised exchanges.
Another unconventional way of investing in Bitcoin could be through Bitcoin mining stocks. Their performances are largely dependent on the asset’s price, but there are certain advantages too.
Mining Stocks – The new way into Bitcoin?
According to data, Bitcoin mining stocks have been outperforming Bitcoin since the beginning of 2020. Since then, these stocks have closely followed BTC’s price. Now, most popular mining companies have a market cap of over $500 million and they also share a high correlation with Bitcoin ranging between 0.7-0.9.
Marathon Riot, Hive, and Hut 8 are popular miners that are highly associated with Bitcoin. However, there is another important point to consider.
Publicly traded miners such as Bitfarms Limited, Riot, and Hive have historically outperformed Bitcoin during bullish rallies. Furthermore, as seen by the chart, they have experienced fewer losses during periods of downturn.
According to Arcane Research,
“In Bitcoin bull markets, the block reward increases in value, while the hashrate lags the bitcoin price increase. Therefore, miners with existing plugged-in capacity enjoy periods of super-profits. In these super profit periods, they can produce bitcoin for a much lower cost than the market price.”
It is also important to note that these publicly traded mining companies also have their own Bitcoin treasuries.
At press time, Bitfarms Limited owned 1678 BTCs, Riot owned 1565 BTCs, and Hive had around 875 BTCs.
Is it a sound strategy?
The investment makes sense in terms of asymmetric returns because these mining companies would be aligned with increasing Bitcoin’s worth. Since China’s mining restriction, North American Bitcoin miners have used the chance to develop a competitive mining culture, and the mining space is projected to become more crucial as Bitcoin supply decreases.
As a result, investing in Bitcoin mining stocks isn’t a bad method to get exposure to Bitcoin. Then again, why wouldn’t you invest in Bitcoin entirely?