Bitcoin Mining Stocks Could Start 2023 Hard Before Rebounding

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It’s a sentiment wary bitcoin and crypto-correlation equity investors probably don’t want to hear, but certainly need.

Some market watchers believe the biggest digital currency could continue to flounder in the first quarter, potentially triggering a series of bankruptcies among financially fragile miners, before giving way to an impressive rebound in the second half of 2023.

Assuming this prediction, which was offered in a recent note by VanEck’s head of digital asset research, Matthew Sigel, proves accurate, it will affect bitcoin and exchange-traded funds such as the VanEck Digital. Asset Mining ETF (DAM).

The median market capitalization of the MVISGlobal Digital Assets Mining Index is now just $180 million, with nearly all constituents burning cash and trading well below book value. With bitcoin mining being largely unprofitable given the recent rise in electricity prices and falling bitcoin prices, we expect many miners to restructure or merge. Ripple losing its SEC lawsuit (possible in Q1, more below) may coincide with this final downdraft, which would cut almost all of the bull market in half after 2020, Sigel noted.

The MVIS Global Digital Assets Mining Index is the underlying benchmark for DAM – an ETF that debuted in March and holds 25 stocks. The fund is struggling this year as falling bitcoin prices weigh on miners’ profitability while forcing some to liquidate cryptocurrency holdings to raise funds.

Moreover, like many other digital assets and related prices, DAM is pinched by the collapse of FTX. This punishment is arguably unfair as the entire range of ETFs do not have exposure to FTX and some of the member companies of the funds have lines of business that have nothing to do with crypto. The largest holding, Block (NYSE:SQ), is a prime example.

Still, there’s no denying the positive impact that a bitcoin rally – assuming it materializes – would have on miner stock prices and therefore DAM. Sigel said that could be possible in the second half of 2023.

In developed markets, we believe consumers will see Bitcoin acting as a store of value over time and as a hedge against M2 inflation rather than overt CPI inflation. In emerging markets, the focus is more on remittances and neutral alternatives to dollar hegemony, Sigel concluded. Meanwhile, if our recession forecast materializes, the Federal Reserve would likely suspend rate hikes amid slowing inflation, while money printing and government budget deficits continue. The sheer lack of crypto-specific bad news, in the above scenario, could send Bitcoin price back up to a wall of concern at $30,000.

For more news, insights and analysis, visit the Crypto Channel.

Opinions and predictions expressed herein are solely those of Tom Lydon and may not materialize. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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