An ETF could be one way to diversify some of the risk of investing in Bitcoin mining stocks.
In 2023, Bitcoin (BTC -0.67%) mining stocks were some of the best investments you could make. The largest Bitcoin miners, such as Marathon Digital Holdings Inc. (NASDAQ: MARA) and Riot Platforms Inc. (NASDAQ: RIOT), were up triple digits for the year. As long as the price of Bitcoin soared, they stood to make money hand over fist, and investors rewarded them with rich valuations.
But in 2024, the situation changed. It's getting harder and harder to pick winners in the Bitcoin mining industry right now. Previous big winners like Marathon Digital and Riot Platforms are down as much as 20% for the year, and their future outlook is now uncertain. That has me thinking that investors should consider diversifying their risk by investing in a Bitcoin miner ETF instead.
Effect of the Bitcoin halving
A primary reason for the steep decline in market performance this year has to do with the Bitcoin halving, which some analysts predict could lead to a shakeout in the mining industry. In a Bitcoin halving, rewards paid out to miners for adding a new block to the Bitcoin blockchain are cut by 50%. That has huge ramifications, because it's a direct hit to top-line revenue. Miners are doing the same amount of work, but making only half as much money as they did before the halving.
The only Bitcoin miners that are likely to survive intact are those with the most powerful Bitcoin mining rigs, the lowest costs, and the lowest debt loads. That's why some of the biggest Bitcoin miners are now suffering. They either took on too much debt to acquire their Bitcoin mining rigs, or they have a bloated cost structure that's now a drag on operations. Given that the amount of money they are now making has been cut in half, it's no surprise that some are down 20% year to date.
Diversify your risk with a Bitcoin mining ETF
If you're adamant about investing in Bitcoin mining stocks, one possible solution is to diversify your exposure to the Bitcoin mining industry with an exchange-traded fund, or ETF. Rather than placing all your eggs in one basket, you can get exposure to a wide range of players within the industry. Some of these are miners, while others are tech companies that provide "picks and shovels" to the miners. For example, consider the Valkyrie Bitcoin Miners ETF (WGMI 1.06%), which has more than 20 different holdings. With this ETF, you can diversify your risk, spread out your bets, and let Valkyrie do all the heavy lifting.
In 2023, the Valkyrie Bitcoin Miners ETF was up more than 235%, making it one of the top ETFs of the year. That makes sense, because the market for Bitcoin miners in 2023 was going gangbusters. However, the picture is likely to get a lot murkier this year. As noted above, some of the biggest Bitcoin miners are likely to take a beating, so any Bitcoin mining ETF is likely to take a beating as well. In 2024, the Valkyrie Bitcoin Miners ETF is down 7%.
However, there are often "sneaky" holdings within any ETF that help provide some extra downside protection. For example, the Valkyrie Bitcoin Miners ETF holds a position in Advanced Micro Devices Inc. (AMD 0.61%) and a position in Nvidia Corp. (NVDA 1.92%). While those companies have exposure to Bitcoin miners, they are obviously not directly correlated with the Bitcoin mining industry.
Trade-offs when investing in ETFs
Just remember: There are always trade-offs involved when investing in any ETF. When the market is in a bullish cycle, you will sacrifice some upside potential because you have diversified your holdings. Sure, you'll have a lot of winners, but you'll also have some underachievers. Thus, it's up to you to decide whether to put a greater emphasis on upside potential or risk management. It's the classic risk-reward trade-off.
Image source: Getty Images.
When it comes to investing in Bitcoin miners, I've never been a big believer in the "set it and forget it" strategy. The market is just too cyclical. With a new Bitcoin halving every four years, there is the potential for new winners and losers on a regular basis. Thus, if you are risk-averse, it might make sense to consider an ETF instead.
Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Advanced Micro Devices, Bitcoin, and Nvidia. The Motley Fool has a disclosure policy.
FAQs
You should buy and invest in Bitcoin miners rather than only buying bitcoin if you believe that over time, bitcon's price will increase faster than the network's hash rate increases. If you do not believe that to be the case, you might be better off using your River account to buy bitcoin in the near term.
Is Bitcoin mining no longer profitable? ›
There are many people and wealthy organizations engaged in the activity, making it difficult for all but a few to reap the legendary rewards mining bitcoin used to promise. However, this doesn't mean you can't make money mining bitcoin—it just won't be as lucrative as it used to be.
What does Bitcoin halving mean for miners? ›
Bitcoin halving is when the reward for bitcoin mining is cut in half. Halving takes place every four years. The next halving is expected to occur sometime in 2028. The halving policy was written into bitcoin's mining algorithm to counteract inflation by maintaining scarcity.
Will Riot survive Bitcoin halving? ›
Riot's strategy for the 2020 halving
If anything, Riot is in a stronger position heading into this particular cycle, armed with a rich balance sheet and more substantial mining operations. The company is even reselling energy to the Texas power grid as heat waves strain the local power grid.
Will Bitcoin mining stocks go up after halving? ›
In the aftermath of the halving, some Bitcoin mining companies are searching for new sources of revenue in the AI sector. As a general rule of thumb, Bitcoin (BTC -2.58%) mining stocks tend to go up when the price of Bitcoin is going up, and down when the price of Bitcoin is going down.
Is Bitcoin mining worth it still? ›
the popular S19j Pro became unprofitable when mining with an electricity cost of $0.06 kWh or more. Whether mining bitcoin using ASICs or mining other crypto currencies with GPU's, with the right equipment and/or electricity rate mining is still profitable.
Is mining still worth it in 2024? ›
In 2024, mining Bitcoin can still be profitable, but miners need to consider factors such as the cost of electricity required to mine a block reward. As the mining difficulty increases more advanced hardware and energy is required by miners.
What year will Bitcoin mining end? ›
This article explores the future landscape of Bitcoin and its network once all bitcoins are mined, a milestone anticipated to be reached around the year 2140 – unless quantum computing gets to it first, that is.
How long does it take to mine 1 Bitcoin? ›
You cannot mine just 1 Bitcoin, instead crypto miners will mine one block, with the reward set at 6.25 BTC per block. Each Bitcoin block takes 10 minutes to mine. This means that in theory, it will take just 10 minutes to mine 1 BTC (as part of the 6.25 BTC reward).
Should I buy Bitcoin before or after halving? ›
Consider this: if it were universally anticipated that bitcoin's value would surge immediately following the 2024 halving, investors would likely move to acquire bitcoin before the event, driving up its price in the present rather than in the future.
The next bitcoin halving is expected to occur in April 2024, when the number of blocks hits 740,000. It will see the block reward fall from 6.25 to 3.125 bitcoins. The exact date of the halving is not yet known as the time taken to generate new blocks varies, with the network averaging one block every ten minutes.
Will BTC go up after halving? ›
What will the impact be on the bitcoin price? Halving reduces the supply of new bitcoins, which should in theory increase the price. It is an economic axiom that if demand for an asset remains stable while its supply decreases, its price should go up.
What is the best Bitcoin miner after halving? ›
After the latest Halving, the most profitable Bitmain Antminer model is the S21 Series. This model can still generate significant profits, offering a monthly income of at least $100. In contrast, older models like the S19 Series are not profitable under current conditions unless Bitcoin's price significantly increases.
Which Bitcoin miners have the least debt? ›
With debt-to-equity ratios of 0.08 and 0.09, Bit Digital and Digihost have the least debt relative to equity. Other prudent operators include Hut 8, Cipher, CleanSpark, and Riot. Riot is one of the biggest public miners, but unlike Core Scientific, it has mostly financed its operations with equity.
Are Bitcoin miners shifting to AI? ›
Bitcoin miners are shifting to AI and HPC, unlocking new revenue through strategic arbitrage, with an estimated $37.6 billion net present value by converting 20% of their capacity by 2027.
Can Bitcoin miners be trusted? ›
Mining Scams
Some companies pretend to provide mining services using a bitcoin mining cloud. They take your money but never mine any bitcoin for you. People often fall for the scam because they want to get their hands on the bitcoin cryptocurrency, and while there are legitimate services out there, some are fraudulent.
Is Bitcoin Mining a risky investment? ›
Crypto mining is operationally and financially risky. Mining hardware can break or become quickly obsolete, requiring downtime and expensive repairs. Fluctuating cryptocurrency prices and electricity costs impose additional financial risks that cannot entirely be mitigated.
How much do bitcoin miners make a day? ›
Bitcoin Mining Reward Forecasts
| Time Frame | BTC Reward | Revenue USD* |
|---|
| Hourly | 0.00001102 | $0.64 |
| Daily | 0.00026456 | $15.32 |
| Weekly | 0.00185191 | $107.23 |
| Monthly | 0.0079 | $459.57 |
1 more rowIn 2024, mining Bitcoin can still be profitable, but miners need to consider factors such as the cost of electricity required to mine a block reward.
