Bitcoin Miners: A Volatility Study

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Many investors are hesitant to buy cryptocurrencies directly, due to their unpredictable price fluctuations. But if you think of Bitcoin (CRYPTO: BTC) As a paragon of massive volatility, you haven’t seen bitcoin miner charts yet. These fickle tickers can make hardened growth stock investors quiver and shake. I can only recommend buying and holding crypto mining stocks if you don’t mind a lot of sleepless nights.

Buckle up and I’ll show you what I mean.

Let’s start with the basics

Here’s how five of the biggest names in bitcoin mining compare in terms of traditional volatility measures. To give you an idea of ​​the expected readings of each metric, I’m also including values ​​for bitcoin itself, an ultra-stable value stock, and an unpredictable meme stock.

Security

Back 2021

3-year return (2019-2021)

Beta

Standard deviation divided by average price

Bitcoin

60.6%

1120%

0.03

0.21

Marathon Digital Backgrounds (NASDAQ: MARA)

214.8%

2170%

4.1

0.32

Digital bit (NASDAQ: BTBT)

(72.3%)

(6.5%)

3.2

0.41

CleanSpark (NASDAQ: CLSK)

(67.2%)

(53.6%)

3.3

0.34

Stable value: Visa (NYSE:V)

(0.9%)

1080%

1.1

0.06

Explosive Meme Stock: stoppage of play (NYSE: GME)

687.6%

64.3%

-2.6

0.34

Price data from YCharts and Google Finance. Author’s 1-year beta and standard deviation calculations.

The one- and three-year stock returns speak for themselves – some bitcoin miners are rising while others aren’t doing so well. As a point of reference, the S&P500 (SNP INDEX: ^GSPC) the stock index is up 27% in 2020 and 90% over the past three full calendar years.

Beta values ​​measure the degree of correlation between a security’s price movements and a market index, usually the S&P 500. A value of 1.0 shows that the security tends to move in the same direction and at a faster rate. similar, with respect to the chosen index. Our digital asset miners score extremely high here, indicating amplified market reactions to anything that moves the index. Bitcoin, on the other hand, gets an almost perfect zero here. In other words, knowing what the stock market is doing on a day-to-day basis won’t help you understand what’s going on with bitcoin prices over the same period — not at all.

And then there is the standard deviation. This statistical tool is a popular volatility measure that skips the idea of ​​comparing the stock to a stock index and simply calculates the stability or instability of the chart under your microscope. The basic standard deviation measure generates higher values ​​for high-priced stocks, so I divide the deviation by the average price of each security to erase this bias. Based on this, all miners turn out to be much more volatile than bitcoin.

Large monthly fluctuations

Looking at the same price data from a different angle, you should know that our Bitcoin mining stocks tend to make huge moves on a monthly basis.

  • Marathon shares are up at least 20% (and as much as 99%) in six of the 12 calendar months last year. It has also seen declines of 20% or more in four months.
  • Bit Digital has posted three full months of gains of at least 20%, including a 63% jump in October. The rest of the year posted negative monthly returns with declines of 20% or more on four occasions.
  • CleanSpark has only had one big win in the 2021 monthly calendar, with an 87% gain in October. Only two months generated a return of 20%, but the losses over seven 30-day periods were between 10% and 20%.
  • Let’s also keep abreast of the points of comparison. Visa’s biggest monthly gain last year was 11.8% in December. The worst reading came from January’s 9.3% decline. It is a model of propriety and tranquility. On the other hand, GameStop’s monthly results ranged from a 46.5% plunge in February to a staggering 1,094% gain in January. So yes, there are even crazier charts than crypto mining specialists.

Why Marathon Leaps While Other Miners Dive

Marathon Digital stands out as a market-beating bitcoin miner. The company’s balance sheet appears strong, holding $33 million in cash and $74 million in digital currencies and no long-term debt at the end of the September 2021 quarter. The company has taken on debt since then, borrowing $650 million dollars in November in an effort to pack more bitcoin mining machines into its facilities in Montana and North Dakota.

At that time, CleanSpark had $18 million in cash and $24 million in digital currency balances. Bit Digital simultaneously held $26 million in cash and $35 million in digital assets. This company used to run its operations in Chinese data centers, but began shipping its equipment to unspecified locations in North America when Chinese regulators cracked down on bitcoin mining in September. last year. Neither Bit Digital nor CleanSpark has any long-term debt to speak of at the start of 2022.

Marathon is the largest bitcoin mining operation on this list, generating 1,098 bitcoins in the fourth calendar quarter of 2021. The strong cash position is also prompting investors to put a little more faith in this company, as Marathon should be able to overcome the temporary refusals of the cryptocurrency market by relying on this beefy reserve of cash.

CleanSpark produced around 600 bitcoins in Q4 and has a much smaller cash cushion. Bit Digital can boast 248 freshly minted bitcoins and limited cash reserves. I can’t blame the investors in these companies for wearing their nerves on their sleeve. The space between successful long-term mining operations and sudden bankruptcy is much smaller in these cases.

Image source: Getty Images.

All of these stocks are risky, including Marathon

Marathon Digital tops the pack in most of my reviews, but I’m not saying you should take on this stock right now. Soaring stock prices also make this ticker extremely expensive, trading at 32x trade sells today.

Remember that even cash-rich companies in this category consistently report negative earnings and free cash flow, which forces them to generate enough cash to keep the lights on in other ways. Some of them sell some of the bitcoins they generate, jeopardizing the future profitability of their digital assets. All are also selling more shares as needed, increasing the number of shares and diluting the value of each existing share by at least 20% over the past year. This is not a shareholder friendly way to manage the balance sheet.

And I can’t get over the possibility that the bitcoin foundation will eventually listen to criticism of its environmental impact and switch to a different transaction settlement technology that doesn’t involve mining. Ethereum (CRYPTO:ETH) is rolling out its Ethereum 2.0 upgrade over the next couple of years, phasing out ether mining in the 2022 part of that process, and there’s no reason Bitcoin can’t one day do the same. If and when this happens, bitcoin miners will be stuck with the digital assets they generated, along with a large and expensive collection of useless mining hardware.

Marathon is therefore about as risky as its smaller rivals. I would rather deal with bitcoin itself than one of these bitcoin mining specialists.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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