Understanding Bitcoin Miners’ Cyclicity | ETF trends
In financial market terms, bitcoin is a relatively new resource. As such, listed digital currency miners are even newer, but these assets are developing their own reputation for cyclicality.
Simply put, there are times, for example now, when cryptocurrencies and miners are in disfavor. Conversely, there are periods when these assets are desirable and flourishing. It is difficult to find out when these changes occur, and so is stock picking. It emphasizes the usefulness of exchange-traded funds, such as VanEck Digital Assets Mining ETF (DAM).
DAM, which debuted in March, follows the MVIS Global Digital Assets Mining Index. The ETF is not foolproof when it comes to steering investors away from bitcoin cycling – that’s a big question. However, DAM is still useful on several fronts today, especially with the prices of the largest digital currency receding.
The bull market in 2021 for bitcoin and miners, including DAM components, underscores the cyclicality of this asset class and why a broad approach for crypto-enthusiastic equity investors may be useful.
“Since the price of BTC went up, the demand for bitcoin had increased. In response, miners were trying to increase production. This meant placing new orders for infrastructure such as mining machines, some of which will arrive in the next few months,” Bitcoinist reported. “This over-investment in infrastructure in new production infrastructure had begun to overwhelm the market. Add to that the fact that several players had entered the market and profits from mining had gone through a significant decline.”
As mentioned above, bitcoin is cyclical, and miners are likely to be squeezed when it falls into disfavor. It is similar to what happens with traditional energy stocks when oil prices fall. Investors are learning this lesson as falling bitcoin prices are leading to profitability concerns while prompting some miners to cut production.
– The decline in profits in turn leads to a reduction in production capacity. Then profits start to rise again, more players enter the room, there is an overinvestment in production infrastructure, and profitability falls again. It goes round and round. Hence the cyclicality of bitcoin mining, “Bitcoinist added.
Last year was a record year for bitcoin mining revenues, but that feat will not be repeated this year. Still, there are some glimmers of hope for DAM components, including declining valuations, financial resources to survive (in many cases) and reductions in all-in mining costs.
For more news, information and strategy, visit the Crypto Channel.
The opinions and predictions expressed here are solely those of Tom Lydon, and may not come true. Information on this site should not be used or interpreted as an offer to sell, an invitation to buy or a recommendation for any product.
