Bitcoin Miners Are Dominating Public Markets

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To investors,

Bitcoin mining continues to be an area worth paying attention to, regardless of what role you play in the market. First, we can see the hash rate has been parabolic since the launch of the bitcoin protocol in 2009.

This trend is even more pronounced if you zoom in on the timeframe from the 2018 bear market to today. You can see that hash rate has continued to accelerate even though China banned bitcoin mining when more than 50% of all mining was within the country’s border.

As hash rate increases, competition for the block subsidy becomes more intense. What exactly is the financial reward for winning that competition today? There was $40.4 million paid out in the last 24 hours to miners.

That is $14.7 billion annualized. There is almost no scenario where hash rate is going to stop growing when more than $14 billion in revenue is up for grabs on an annual basis.

Another area to pay attention to is miner revenue from transaction fees. Usually transaction fee revenue would spike in the bull market — tons of people are trying to use the blockchain during the euphoric phase of the market cycle, so you have to pay higher prices to use the finite amount of block space.

Recently, we have seen two major spikes in transaction fee revenue although we are in a bear market though. These are largely driven by Ordinals/Inscriptions, but still signal a significant departure from past trends and it has provided additional economic incentive for miners to continue competing for revenue.

So how exactly have miners been performing? We can look at publicly traded miners to get a sense of how the industry players are doing this year:

* Marathon Digital: +359%

* Iris Energy: +356%

* Cleanspark: +356%

* Riot Platforms: +349%

* Hive Digital: +159%

* Terawulf: +128%

* Hut 8 Corporation: +1,228% (note: they just completed an equal merger)

This type of financial performance is impressive by itself, but it becomes even more eye-opening when you realize that 5 of the 7 companies listed have more than doubled the performance of bitcoin year-to-date.

Another interesting data point is how miners are handling the bitcoin on their balance sheet. You can see that miners have been net sellers since the start of November, which suggests that these organizations are taking advantage of the recent price appreciation and selling into the strength to drive further cash reserves.

Overall, bitcoin mining seems to be in a great spot. Hash rate is at all-time high levels. Miners are pulling in $14+ billion in annualized revenue. The stock price of publicly traded companies is wildly outperforming bitcoin’s price performance. And we have not yet experienced the bitcoin having slated for early Q2 2024.

The narrative in the bitcoin community of buying and exclusively holding bitcoin sounds good as a talking point, but it is essential that you think critically about what you are trying to accomplish from an investment perspective. It is hard to ignore the benefit of bitcoin miners based on the market factors and stock performance.

The gold community has long debated the pros and cons of holding gold vs buying gold mining stocks. The bitcoin community is following fast on their heels with a similar debate. But as with most things in life, maybe the truth can be found closer to the middle ground than the extremes.

Hope you all have a great day. I’ll talk to everyone tomorrow.

-Anthony Pompliano

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