Bitcoin stock ETF, the 'second derivative' of crypto stocks amplifies BTC volatility

I. Basic Elements:$Valkyrie Bitcoin Miners ETF(WGMI.US) WGMI is an ETF launched by Valkyrie that focuses on Bitcoin mining companies. This ETF provides investors with a convenient way to invest in Bitcoin mining companies through traditional stock markets without directly purchasing and holding Bitcoin itself.

WGMI's investment strategy is to diversify investments across multiple Bitcoin mining companies to mitigate the impact of risks associated with any single company. This strategy allows WGMI to capture the growth potential of the entire Bitcoin mining sector while diversifying risks through a varied portfolio.

Data source: Futu, a crappy ETF, 20240415

II. Investment Logic

1. The Role of Bitcoin Mining Companies

The cryptocurrency industry chain mainly includes four segments: mining machine manufacturers, miners, exchanges, and payment wallets.

Data source: Guosen Securities Research Institute, a crappy ETF, 20240415

Bitcoin mining companies play a central role in the cryptocurrency ecosystem. They verify transactions and maintain the security of the Bitcoin network by solving complex algorithms. In return, miners receive newly generated Bitcoin as block rewards. As the Bitcoin network continues to develop and mature, the role of mining companies has become increasingly important, as they provide the necessary computing power for the Bitcoin network.

2. The Relationship Between Bitcoin Price and Bitcoin Mining Company Stock Prices

According to market data, there is a certain correlation between the stock prices of Bitcoin mining companies and the price of Bitcoin. (Related article: 👉Bitcoin (Part 2), Asset Attributes & Stock Investment) When the price of Bitcoin rises, mining companies often see their stock prices rise as well due to increased mining revenues. However, the stock prices of mining companies are also influenced by other factors, such as mining difficulty, electricity costs, and operational efficiency. (Related article: 👉Bitcoin ETF, Investment Value V = 10^(k*lg(t)-b)?) Therefore, WGMI's performance is not only affected by the Bitcoin market but also by the operational conditions of its constituent companies.

3. Investment Risks

①BTC is highly volatile, and the elasticity of mining stocks is greater than that of BTC;

②Stock issuance by mining companies often negatively impacts their stock prices in the short term;

③Management, such as timely information disclosure and "share reduction" activities, affects stock prices;

④Mining efficiency: Currently, top-tier stocks like Mara and Clsk have the highest mining efficiency, while stocks of less efficient miners have seen significant adjustments;

⑤Electricity costs: Compared to China, electricity costs are higher in developed countries like the US and Europe;

Data source: Guosen Securities Research Institute, a crappy ETF, 20240415

⑥Regulatory requirements: With the development of BTC, the SEC finally approved spot ETFs in January 2024, but it cannot be ruled out that new policies may be introduced in the future.(The U.S. Securities and Exchange Commission once rejected BTC ETF products due to concerns about market manipulation, liquidity, valuation, custody, and security issues. However, after many financial institutions and investment companies applied and improved redemption and issuance mechanisms, BTC ETFs were eventually approved. Bitcoin ETFs (exchange-traded funds) began in 2013 when the Winklevoss brothers announced plans to launch an exchange-traded fund for Bitcoin, but the application was rejected in 2017. Since then, companies like VanEck, Fidelity, WisdomTree, and Bitwise have submitted proposals to the SEC.)