Author: Andrew Throuvalas / Source: Why a Bitcoin ETF Is Making BTC Miners Nervous - Decrypt

Translation: Plain Blockchain


With the first U.S. on-exchange Bitcoin Exchange Traded Fund (ETF) seemingly on the horizon, the entire cryptocurrency industry is filled with optimism about how such a product could enhance Bitcoin's legitimacy in the investment world, drive institutional adoption, and propel Bitcoin prices to new heights, including Bitcoin mining companies.


As the first U.S. on-exchange Bitcoin ETF is set to debut, the overall optimism in the cryptocurrency industry indicates confidence in how it could enhance Bitcoin's legitimacy in the investment world, drive institutional adoption, and push Bitcoin prices to new highs. This includes Bitcoin mining companies—companies that operate large clusters of computers specifically designed to secure the Bitcoin network and obtain newly minted bitcoins.However, a key fact in the current Bitcoin investment landscape may be causing concern for mining company investors.
"We are optimistic about the ETF, and there are indications that it will have a positive impact," Isaac Holyoak, Chief Communications Officer of CleanSpark, told Decrypt. He pointed out that during bullish periods, mining stocks often inherit Bitcoin's positive momentum.
While Bitcoin itself has risen this year, the returns of publicly listed mining stocks have been even higher—similar to other Bitcoin-related companies. In the absence of anETF, these companies have long served as regulated, more traditional Bitcoinleverageinvestment options.
However, there is a problem: while BitcoinETFsmay seem promising, they could also divert funds from stocks that investors have so far seen as the next best choice.
For CleanSpark, the company remains optimistic, focusing on the price of Bitcoin. "Recent developments—including false claims about the ETF and implications of CUSIP listing—have driven the price of Bitcoin higher," Holoyak emphasized.
As most of the mining companies' revenue comes from fixed Bitcoin block rewards, a rise in the price of Bitcoin will bring higher dollar-denominated income to the entire industry.
To gain a competitive edge, CleanSpark expects prices to rise in the future and has invested millions of dollars this year in purchasing mining equipment.
In a mining industry report shared with Decrypt in October, J.P. Morgan stock analyst Reginald L. Smith marked CleanSpark (CLSK) as an overweight stock, attributing this to its "substantial discount pricing" for hardware and facilities, and efficient cluster operations. CLSK has risen 122% year to date.
Another company making significant infrastructure investments this year is Iris Energy (IREN)—a renewable energy-focused mining company, optimistic about the upcoming Bitcoin halving. Smith also rates Iris Energy's stock as "overweight," with a 161% increase this year.
Daniel Robert, co-founder and co-CEO of Iris Energy, said, "[The halving] historically involves additional price catalysts, as Bitcoin becomes scarcer. Coupled with the potential relaxation of the macro monetary environment in the next 6-12 months, we may be entering a golden period for Bitcoin."
Regarding ETFs, Roberts pointed out that the approval by the U.S. Securities and Exchange Commission could bring a "large pool of funds" to the Bitcoin market, combined with the bullish effects of the halving and relaxed macro environment.
On-exchange Bitcoin Exchange Traded Funds differ from existing Bitcoin investment products in the United States, as their shares can be directly exchanged for a fixed amount of Bitcoin held by the provider and its partners.
Aydin Kilic, CEO of HIVE Digital, explained to Decrypt, "Exchange-traded platform funds are an infinite take for the current market fund options. It will open up this asset class to professional investors and retail retirement accounts."
One of the main choices in the stock market today is the Grayscale BitcoinTrust Fund(GBTC), which charges high fees and cannot accurately track the price of Bitcoin.
The fund's shares currently trade at a discount, below the Bitcoin held by the fund. Efforts to transform this fund into an on-exchange Bitcoin Exchange Traded Fund are expected to succeed, and upon approval, this discount is expected to gradually narrow. If approved, the discount will disappear completely.
While some may prefer to directly purchase and hold Bitcoin, many retail investors may be less willing to buy Bitcoin from typically unregulated cryptocurrency-specific platforms. Additionally, as explained by Roberts of Iris, direct investment in Bitcoin is entirely impossible for many larger companies.
He noted, "Institutional investor investment regulations and general retail securities brokerage regulations often prohibit investing client capital outside of certain defined instruments and securities. Therefore, ETFs may be a way to address this issue."
After GBTC, there are other options, including the cryptocurrency trading platform Coinbase (COIN; up 120% year to date) and the futures-based ProShares Bitcoin StrategyETF(BITO; up 64% year to date). However, there are also more than a dozen publicly listed mining companies that have performed well in the Bitcoin space.
J.P. Morgan's Smith specifically mentioned Marthon Digital and Riot Platforms, the two largest Bitcoin mining companies, as indirect Bitcoin investments that are not as direct as ETFs in a recent podcast interview.
He explained, "Compared to buying Riot or Marathon, anETFcan more directly participate in the Bitcoin market, avoidinghash rateand downtime issues."
He added, "ETFs may also introduce an entire new area of arbitrage opportunities, perhaps directly buying Bitcoin and leveraging it cheaper than indirectly purchasing through one of the mining companies."
In this dynamic, Bitcoin mining companies and mining pool operator Foundry Digital acknowledge that ETFs may have a "counterintuitive negative impact" on the industry.
Alex Altman, CFA, Senior Manager of Corporate Development at Foundry, said, "Mining companies have been used as an alternative way to obtain Bitcoin investments in the public market for the past few years. It will be interesting to see how these newETFtools will affect public mining valuations, as investors will now have a more direct, cost-effective way to access this asset class."