Spot Bitcoin ETFs are creating long-term competition for publicly traded crypto miners, according to a Galaxy Research report released Wednesday.
Galaxy analysts said that prior to the approval of these ETFs, publicly traded mining stocks were one of the few ways investors could gain exposure to rising Bitcoin prices.
However, as more sophisticated investors enter the market, miners will need to showcase their earning potential to effectively compete with spot Bitcoin investments.
Analysts led by Galaxy Vice President of Mining Brandon Bailey wrote: “In the short term, ETF approval is likely to be a consideration for investors when considering whether to invest in public mining stocks. “It's expensive.”
“Retail investors are likely to continue to view and trade miners as leveraged long Bitcoin traders using ETFs as their primary performance benchmark,” they added.
Financial institutions are likely to go long Bitcoin ETFs and short mining stocks.
On the other hand, in the short term, financial institutions appear to prefer Bitcoin ETFs over mining stocks. The team observed that this trend is already starting to emerge from the beginning of 2024.
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Bitcoin ETFs provide a regulated means for investors to take advantage of Bitcoin's potential without directly owning the cryptocurrency. As these ETFs grow in popularity, they could impact demand for Bitcoin itself.
The Galaxy report highlighted that this change in demand could impact crypto miners. In particular, it can affect variables such as Bitcoin value, mining profitability, and market sentiment. The team suggested that mining companies consider how much profit they can make regardless of Bitcoin price fluctuations.
Mining companies face share dilution pressure
The team also noted that if the mining company decides to raise funds by issuing additional shares, the stock price could fall. This is especially true if investors believe they will get better returns by investing in ETFs than by investing directly in companies.
“However, Bitcoin miners may benefit from a broader range of ETF and fund products, as well as research and coverage, if this outweighs some of the disadvantages of increased competition from Bitcoin ETFs.” said.
As the cryptocurrency market has shrunk in recent years, miners have faced considerable difficulty in maintaining profitability, and hedging options have received renewed attention.
Bitcoin miners have explored these strategies to protect their profits from the unpredictability of the crypto market. For example, GSR has launched a hedging product aimed at providing miners with a more reliable source of income.
