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The Unsettling Ripples: Why Bitcoin ETF Is Stirring Up Anxiety among BTC Miners

Updated: Dec 23, 2023

TL; DR

As the first U.S. spot Bitcoin ETF nears approval, the crypto industry is optimistic. Bitcoin mining firms are also looking forward to it, but there's a concern. While Bitcoin's value has surged, public mining stocks have performed even better and have been seen as alternatives for Bitcoin exposure without an ETF. The introduction of an ETF could divert capital away from these stocks. Mining firms like CleanSpark and Iris Energy are investing heavily to capitalize on rising BTC prices. J.P. Morgan has identified these firms as promising investments. An ETF could affect the value of these mining companies and offer a more direct way for investors to access Bitcoin.



As the first U.S. spot Bitcoin ETF (Exchange-Traded Fund) draws closer, the entire crypto industry is brimming with optimism. This groundbreaking product has the potential to enhance Bitcoin's legitimacy in the world of investing, drive institutional adoption, and propel the price of BTC to new heights.


Among those eagerly anticipating this development are Bitcoin mining firms. These companies operate extensive computer fleets dedicated to securing the Bitcoin network and earning freshly minted coins. However, there is a crucial aspect of the current Bitcoin investing landscape that may give investors in mining firms some cause for concern.


"We have a positive outlook on the ETFs, and there are encouraging signs," shared Isaac Holyoak, Chief Communications Officer at CleanSpark, with Decrypt. He highlighted that mining stocks tend to align with Bitcoin's positive momentum during bullish periods.


While Bitcoin itself has seen a remarkable surge of over 100% this year, public mining stocks have recorded even more robust returns. These stocks, along with other BTC-related firms, have served as regulated and more conventional investment options for those seeking exposure to Bitcoin in the absence of an ETF.


However, there is a catch. Despite the potential promise of Bitcoin ETFs, their introduction may divert capital away from stocks that investors have long regarded as the next best alternative.



CleanSpark, a mining firm, remains optimistic about Bitcoin's price. Recent developments, including the false claim of an ETF and the hinting of one with the CUSIP (Committee on Uniform Security Identification Procedures) listing, have spurred an increase in the price of bitcoin. This has significant implications for the industry, as a rising BTC price leads to higher USD-denominated revenue for mining firms, whose primary source of income comes from fixed BTC block rewards. In anticipation of even higher future prices, Cleanspark has strategically invested millions of dollars into mining equipment this year, aiming to gain the most significant competitive edge in the market. By doing so, they aim to maximize their profitability and capitalize on the potential growth and opportunities in the cryptocurrency industry.


According to a mining industry report shared with Decrypt in October, CleanSpark (CLSK) was identified as an overweight stock by J.P. Morgan equity analyst Reginald L. Smith. This was attributed to CleanSpark's acquisition of hardware and facilities at discounted prices, as well as its highly efficient fleet. CLSK has seen a remarkable 122% increase year to date.


Another company, Iris Energy (IREN), has also made significant infrastructure investments this year. As a renewable-focused miner, Iris Energy is particularly optimistic about the upcoming Bitcoin halving. Smith also rated Iris shares as "overweight," which have climbed 161% this year.


Daniel Robert, co-founder and co-CEO of Iris Energy, highlighted the historical significance of the halving event, stating that it has historically acted as an additional catalyst for Bitcoin prices due to the scarcity of coins. He also mentioned the potential easing of macro monetary conditions over the next 6-12 months, which could contribute to an intriguing period for Bitcoin.

Regarding an ETF, Roberts noted that SEC (Securities and Exchange Commission) approval could unlock substantial capital for the Bitcoin market, further amplifying the bullish effects of the halving and improving macro conditions.


A spot Bitcoin ETF is different from existing Bitcoin investment products in the U.S. Its shares can be directly redeemed for a fixed amount of BTC held by the provider and partners.


The trust's shares currently trade at a discount to the fund's underlying BTC holdings. This discount has narrowed over time as confidence grows in the fund's efforts to convert into a spot Bitcoin ETF. It will disappear entirely if/when approved.


While some prefer to hold BTC personally, many retail investors may be uncomfortable buying coins from unregulated crypto platforms. Additionally, larger firms need help to invest in physical Bitcoin.


Following GBTC, some of the available options include the cryptocurrency exchange Coinbase (COIN; up 120% YTD) and the futures-based ProShares Bitcoin Strategy ETF (BITO; up 64% YTD). However, beyond these choices lie more than a dozen publicly traded miners who have shown promising performance against Bitcoin—so far.


During a recent podcast interview, J.P. Morgan's Smith highlighted Marathon Digital and Riot Platforms—two of the largest Bitcoin mining companies—as indirect Bitcoin investments that may be considered inferior to an ETF. He emphasized that investing in Riot or Marathon involves dealing with factors such as hash rate and potential outages, whereas an ETF provides a cleaner exposure to Bitcoin.



Furthermore, an ETF could open up a new realm of arbitrage opportunities, where it might be more cost-effective to buy Bitcoin directly and leverage it rather than purchasing indirectly through one of the mining companies.


When asked about this dynamic, Foundry Digital, a Bitcoin mining firm and pool operator, acknowledged the potential "counterintuitive negative consequences" that an ETF could have on the industry.


In recent years, mining companies have become popular proxies for investors seeking exposure to Bitcoin in public markets. They provide a convenient way for investors to access this asset class. However, the introduction of new ETF vehicles will likely affect the valuation of public mining companies. These ETFs offer a more direct and cost-effective way for investors to participate in the Bitcoin market, potentially influencing the perceived value of mining companies.


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