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Bitcoin ETFs Will Destroy These Three Crypto Stocks – DL News
- The launch of Bitcoin spot ETFs in the US means it is easier than ever for investors to gain exposure to the asset.
- Crypto stocks, which until now had acted as proxy investments in Bitcoin, could suffer.
- Analysts at Maple Finance and North Rock Digital have identified three stocks that could fall.
Spot Bitcoin exchange-traded funds launched in the United States this morning – a historic moment that made it easier than ever for investors to gain exposure to the leading cryptocurrency.
But Bitcoin’s victory it could end up being harmful to crypto stocks like Coinbase, Marathon Digital and MicroStrategy, according to analysts at Maple Finance and North Rock Digital.
The crux of the problem: These stocks have historically tended to serve as proxies for traditional investors seeking exposure to Bitcoin without using Bitcoin futures ETFs.
Now that spot Bitcoin ETFs are available in the U.S., these investors are likely to “move away from these less-than-ideal instruments and toward the spot Bitcoin exposure they initially desired,” the analysts said.
Today, Bitcoin rose 6% to surpass the $49,000 mark, before falling back to $46,000. MicroStrategy is down 4%, Coinbase is down 5%, and Marathon is down a whopping 14%.
And every business faces a unique set of challenges.
Inherent headwinds
“Coinbase is undoubtedly a good business, but ETFs bring a lot of new competition to the playing field,” said Quinn Thompson, head of capital markets and growth at Maple Finance. DL News.
The SEC’s blessing of the ETF has set the stage for a price war between different fund managers. Cathie Wood’s Ark Invest will charge zero commissions for the first year, while BlackRock offers 0.12% for the same period, then rising to 0.25% thereafter.
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Coinbase has said DL News that doesn’t care about the competition, despite the analysts interrogation the exchange’s high retail transaction fees.
CoinBase exchanged according to CoinGecko, the value of Bitcoin is over $2.2 billion in the last 24 hours, a figure comparable to expected inflows for ETFs.
“Some estimates call for $2 billion to $4 billion in inflows into new Bitcoin ETFs in the first few days of trading,” Thompson said. “This is a serious level of encroachment into a previously wide moat in the United States.”
Bitcoin mining companies like Marathon, meanwhile, must grapple with the future halving – a mechanism through which the Bitcoin network reduces Bitcoin mining rewards by half. Expected every four years, the next halving is currently expected in April.
With Bitcoin block rewards halved, miners’ income will plummet, while their huge energy costs will remain the same, or even continue to rise.
“The halving represents a serious risk to profitability that can only be resolved with much higher prices – over $75,000 by my estimates – or with much higher activity and transaction fees – at least double or triple the levels current,” Thompson said.
“Producers with higher costs are likely to face some difficulties in the months following the halving,” he added.
While Marathon is one of the largest Bitcoin mining companies in the world, it also has some of the highest energy costs in the industry, according to an October note from JPMorgan.
“This will force [miners] issue more shares to extend its runway and dilute existing shareholders. It’s a tried and true program that they follow all the time and it shouldn’t surprise people,” Thompson said.
“Gold ETFs and gold mining companies both exist in public markets, and people invest in them for different reasons. If these can coexist, why shouldn’t Bitcoin ETFs and Bitcoin miners?” Charlie Schumacher, Marathon’s vice president of corporate communications, said DL News.
“Overall, we see this event as very positive for the industry as it is likely to attract more people into the space, therefore increasing the size of the pie for everyone,” Schumacher added.
MicroStrategy shares, for their part, currently trade at a significant premium to the company’s underlying book value, the report said, referring to the value of the operating company in addition to the value of the 189,150 Bitcoin it holds.
However, uncertainty surrounding MicroStrategy potentially offloading its Bitcoin holdings, combined with co-founder Michael Saylor’s recent sale of shares in the company – and the risk of further downward pressure, analysts say on it – makes investing riskier than simply gaining exposure through a Bitcoin ETF. She said.
The report compared MicroStrategy to Grayscale’s Bitcoin Trust, which also traded at a premium for years “only to reverse course and trade at a discount when the asset fell out of favor due to better alternatives and worsening sentiment.”
Coinbase and MicroStrategy did not immediately respond to requests for comment.
Updated at 4:06pm CST with comments from Marathon.
Tom Carreras is a markets correspondent for DL News. Do you have a tip on ETFs, crypto stocks and Bitcoin? Please contact tcarreras@dlnews.com