Buying stock in companies that have a primary purpose of mining BTC and other crypto's are unsafe and uninvestable unless they diversify.
Now here's the thing: Crypto is obviously too big to fail and is a big part of our present and future digital ecosystem. This post doesn't imply that you shouldn't invest in blockchain infrastructure – because you should – it's to warn you about the dangers of investing in companies that rely on revenue from mining, alone. Please be open minded and take the facts of this posts seriously when doing your own DD.
Here's the reality. Only about 900 Bitcoin are mined per day. Based on the current BTC value (at time of writing) of $42,228 that's around $38,000,000 in Bitcoin-to-USD value available per month. Bitcoin mining difficulty increases when more nodes (competition) are present. As you can imagine, BTC mining increases when the value increases resulting in higher mining difficulty – while difficulty decreases when the price of BTC drops (because less miners are interested in mining). When BTC prices are stagnant, difficulty mining begins to slowly drop. The rate at which mining difficulty increases or decreases changes just about every two weeks.
Companies like $HIVE, $RIOT and $HUT are absolutely fucked without diversification in the Blockchain industry. These 3 stocks rely mostly on mining crypto for revenue with BTC being their #1 focus. They must be bearish BTC or so high on hopium that each CEO thinks they'll take over 90% of Bitcoin mining rewards. Remember, only $38,000,000 in BTC is available to miners a month and that is split amongst millions of people – from massive publicly traded companies to your bestfriend with a $300 mining rig in his moms basement. Mining companies are mostly negative this past year due to the lack of BTC volatility and price resistance. Because of this lack in volatility or upwards movement, mining companies aren't just missing out on profit but are also generating losses due to constantly raising mining hashrates and corporate expenses. These mentioned companies are worth over $4,000,000,000 combined and collectively generate a revenue of about $200,000,000 every 3 months – between ALL of them. Forward looking P/E ratios are also declining YOY for these companies indicating that expenses are on path to exceed any profit.
Something else to consider are that only 2 million BTC are left to be mined with todays technology It's calculated and estimated that Bitcoin mining will end around the year 2140. That gives these companies runway beyond any of our lifetimes, right? Wrong. How many of you believe Bitcoin will be over $5,000,000 in 20 years? What about $1,000,000 in 15 years? Or what about just $500,000 in 15 years? Well if you do, mining difficulty will increase by 10-fold. If you're bearish on crypto and the value of Bitcoin plummets in our lifetime that's even more reason mining companies will fail as miners in a bear market will simply turn off machines and cut costs. In a bear market these miners would also take on massive losses in their digital holdings portfilio. A loss in NAV (net assets value) would result in layoffs, restructuring and possibly asset liquidation – wouldn't you sell a few thousand unused miners if BTC dropped 50% after 5 years? A single public company would have to increase their mining output by a fuck ton at just $250,000/BTC based on mining difficulty history. In a strong bearish market these companies lose value in their digital holdings and potentially lose hashrates/production.
In conclusion, mining cryptocurrency has an inevitable end. Crypto mining companies are constantly facing increased expenses and only realize short term profits in strong bull markets while greater losses are present in a bearish or stagnant market. Because the risk obviously outpaces the reward there are only two solutions I can see for these types of companies: M/A or diversifying their business model in blockchain infrasfructure. Adding a business segment that focuses on offering blockchain products and services to rely on revenue could protect certain companies from bankruptcy if mining were to become too expensive. Mergers and acquisitions in this space should get hot as difficulty increases and several companies combine mining power to offset ever-rising expenses. The unsafest blockchain business model is mining.
Disclaimer: This is my own DD – do yours. My low market cap value stock is currently $BTCS which generates most of its revenue in blockchain infrastructure, regularly adds to its digital portfolio and has a primary focus on newer blockchain tech including Web 3.0, NFTs, smart contracts, decentralized platforms and the metaverse. I own shares of $BTCS at $0.4.
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