WGMI - WGMI? A Sobering Look At Bitcoin Miners
2024-03-19 10:53:51 ET
Summary
- Bitcoin mining is a highly competitive industry with low barriers to entry and no ability to determine prices, making it difficult for publicly traded miners to outperform BTC.
- Publicly traded Bitcoin miners are likely to underperform the S&P 500's cash flow yield and may go to zero in the next 15 years if they don't make some changes.
- WGMI is an ETF that is heavily concentrated in top mining stocks.
- WGMI is good as a short term play on a continuation of the BTC rally. I expect issues over a multi-year time frame.
Bitcoin (BTC-USD) mining has grown into an industry which receives a not infrequent amount of coverage in the media. For a long time, the energy cost of proof-of-work mining was viewed as a negative to the environment. Today that narrative is beginning to change for many good reasons. Bitcoin is concurrently growing into an asset class and socioeconomic concept which is gaining greater acceptance. As it does, it is likely that publicly traded Bitcoin miners will become a bigger field of investment analysis.
This report covers the economics of Bitcoin mining and argues that most (if not all) publicly traded miners are doomed to the following:
- They are almost guaranteed to massively underperform BTC over any 6-year period
- They are highly likely to underperform the S&P 500’s cash flow yield. As a result, the stocks should underperform the S&P 500. They may outperform the S&P 500 if and only if the company partially becomes a Bitcoin holding company such that it is valued more by its balance sheet rather than its cash flows.
- They are likely to go to 0 in the next 10-20 years, or at least cease much of their current mining operations. A new type of publicly traded BTC miners may emerge as survivors, but these miners will be very different from today’s miners.
- They are completely dependent on the long-term acceptance, adoption, and utility of Bitcoin. This is the most certain point of all four.