Bitcoin’s recent bout with volatility — one that led to a noticeable pullback and surprisingly weak run in October — reminds investors of some important points. That includes the often-tight correlations to the crypto shared by companies that mine it.
For example, the CoinShares Valkyrie Bitcoin Miners ETF (WGMI) is lower by about 17% over the past month. That’s a stark reminder that shares of bitcoin miners are responsive — in both directions — to the digital currency’s gyrations. WGMI’s retrenchment could also prove to be a buying opportunity. That’s because a case can be made that the ETF’s holdings have been punished too severely.
That argument rests in the notion that bitcoin miners, including WGMI holdings, are rapidly altering their revenue streams to reduce dependence on crypto while being more accommodative to the AI boom.
WGMI Has AI Credentials
Crypto miners’ pursuit of more AI and hypercomputing business is well-documented. But that evolution, much like those industries themselves, is nascent. That implies many investors will continue viewing WGMI through a bitcoin lens. But that youth may also imply WGMI member firms have plenty of AI-fueled growth opportunities ahead of them.
“Bitcoin miners are now an integral part of the AI value chain, providing warm powered shells for AI data centres — considered the biggest bottleneck to execution,” according to a Bernstein report out earlier this month.
Confirming its bullishness on bitcoin miners’ AI opportunity set, Bernstein boosted price targets on some WGMI holdings. That could be a sign Wall Street is awakening to a longer-ranging growth path for cryptocurrency miners. That sign is not heavily dependent on digital currency.
That evolution is important for another reason. Due in part to last year’s halving, bitcoin mining is now less rewarding and more cost-intensive.
“The math is brutal. Companies that could previously mine Bitcoin profitably at $50,000 per coin now struggle at $100,000,” reported DL News. “Meanwhile, capital costs have soared, while building out mining capacity requires massive upfront investment in ASICs and infrastructure, with payback periods that stretch years into the future.”
Indeed, that’s ugly math. But it could also incentivize WGMI holdings to continue down the paths of AI and hypercomputing. Investors should hope that plays out, because markets are placing higher multiples on miners with AI exposure.
“Bitcoin miners with active AI contracts trade at roughly $6 million per planned megawatt,” Bernstein said. “That’s double the $3 million per megawatt for pure-play Bitcoin miners.”
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