The bitcoin price is now stabilizing after falling below $30,000 during the first half of May, resulting in the recovery of mining stocks after a period of decline.
Stronghold Digital Mining Inc. (SDIG) is the best performer over the past seven days, but the stock is still down 78% YTD. The company is valued at very low multiples right now, and it looks like value investors have been smelling blood in the streets, picking up some cheap shares, Arcane wrote in an insight.
Many investors are viewing this as an ideal buying opportunity for the entire digital assets ecosystem due to the inherent volatility of the asset class. Digital assets have seen years of tenfold growth and other years with more than 80% losses. In 2020, bitcoin returned nearly 303% — the following year, in 2021, it returned over 57%.
The current soaring energy prices can be problematic for grid-connected miners, but this is not as big of a problem for Stronghold because it has the additional option of selling electricity to the grid if it becomes more profitable than using the electricity to mine bitcoin. “We can view Stronghold’s optionality from owning a power plant as a call option on energy prices, which reduces their risk since bitcoin miners are inherently short energy prices,” Arcane wrote.
Mining enables the production of bitcoin for a lower cost than what is available when purchasing it in the market. In bitcoin bull markets, the block reward increases in value, while the hash rate 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, according to Arcane.
Funds that offer exposure to bitcoin miners include the Invesco Alerian Galaxy Crypto Economy ETF (SATO) and the Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BLKC).
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