Bitcoin Mining Stocks’ Underperformance Is a “Compelling Buying Opportunity”

On Tuesday, analysts at HC Wainwright released a note outlining their views on the Bitcoin (BTC) mining industry, noting a significant increase in the collective operating hash rate among publicly traded BTC miners in February. Hash rate increased 8% month-over-month to 125.7 EH/s, accounting for 22% of the total network hash rate at month-end, up from 21% in January, the company said. Despite this increase, there was a 12% decrease in total BTC production compared to the previous month, with miners producing 5,175 BTC compared to 5,848 BTC in January.

The decline in BTC production was attributed to a 52% month-on-month decrease in transaction fees and a 9% increase in network difficulty, as well as the shorter duration in February compared to January. Additionally, miners sold 60% of the BTC they produced in February, which was less than the 65% sold in January.

Bitcoin’s recent price rise took a slight pause on Tuesday, with the cryptocurrency currently down about 0.3% to $71,929.

In the investment space, HC Wainwright noted that BTC ETFs in the US have seen record inflows. Last week, these funds recorded net inflows of over $2.2 billion, surpassing the previous week’s record of $1.7 billion. This surge in interest has pushed BTC prices to new heights, with the cryptocurrency trading above $72,000 for the first time after breaking its previous all-time high of $69,000 earlier on Tuesday.

The company also noted that BlackRock’s recent filings indicate plans to invest in Bitcoin ETFs, including its iShares Bitcoin Trust and ETFs from other issuers. The move is part of a broader trend of institutional adoption as BlackRock’s three funds – the Global Allocation Fund, the Strategic Income Opportunities Fund and the Strategic Global Bond Fund – can now invest in spot BTC ETFs. HC Wainwright also highlighted that MicroStrategy continued to invest in BTC and purchased an additional 12,000 BTC for approximately $821.7 million.

Last week, the price of BTC rose by 9.4%, almost reaching its previous all-time high set in November 2021. The network hash rate increased by 8.0% week-on-week, while the network difficulty remained unchanged. Despite BTC’s positive price movement, mining stocks recorded a 1.4% decline week-on-week.

HC Wainwright reiterated comments from earlier today, saying the recent underperformance of mining stocks presented a “compelling buying opportunity.” The company attributes the underperformance to capital shifting from mining stocks to spot BTC ETFs, concerns about miners’ revenues following the Bitcoin halving, and a correction after mining stocks outperformed BTC price gains in the fourth quarter of 2023. The company maintains a positive outlook for the BTC mining sector, noting that miners have significantly outperformed BTC in 2023.