The question of whether to buy Bitcoin (BTC +1.28%) or Bitcoin miners such as Marathon Digital (MARA 6.53%), Bit Digital (BTBT 9.03%), or CleanSpark (CLSK 6.72%) is a good one. Fool.com contributors Chris MacDonald and Jon Quast discussed the pros and cons of taking this approach on this Jan. 19 episode of "The Crypto Show" on Backstage Pass.
Jon Quast: We'll go ahead and start talking about that here. This was an article that came out on Saturday, very, very interesting on Bitcoin mining stocks. Specifically, here, I believe he is looking at Marathon Digital symbol, MARA and he is also looking at well, let me just flip ahead Bit Digital, symbol, BTBT, and CleanSpark CLSK. CleanSpark is not just a Bitcoin miner. They do have these other products that are basically designed to make power systems more efficient. Especially, I believe it's off-grid power systems help them be more efficient and they said well, we can apply this and mine Bitcoin more efficiently.
But, Anders, very interesting, the look that he had of these companies and their stocks and their beta their relative volatility to the market, finding that, as you pointed out, they're much more volatile than Bitcoin itself.
Chris MacDonald: We touched on Bitcoin miners, I know in previous shows, in terms of their leverage exposure to the underlying prices of cryptocurrencies like Bitcoin. These top miners are Bitcoin miners. Generally speaking, when the price of Bitcoin goes up because these miners have high fixed costs and their costs are locked in dollars when the price of Bitcoin goes up, their debt, which is denominated in dollars, goes down relative to Bitcoin and their revenue, which is denominated in Bitcoin, goes up. Their balance sheet looks a heck of a lot better when Bitcoins on an uptrend.
Based on which direction Bitcoin is moving, these miners can often move in an amplified way. If you are looking at this slide here, so it's interesting when we look at Marathon with a beta of four that means essentially if the market goes up by 1%, Marathon could go up by 4% on average and vice versa.
Bitcoin like I said, with the beta of zero, you don't know which direction it's necessarily going to go. It's kind of agnostic to the markets, which is more of what we would expect. It is a lower correlation asset. Some of these other cryptocurrencies do have higher betas.
That goes back to our previous discussion, but looking at the Bitcoin miners, you get that leveraged exposure to crypto prices. In good times, that's great. In times of a little bit more uncertainty like right now, these top miners are seeing drops.
But that being said, you look at Marathon Digital with its three-year return, they're over 2000%. That is pretty incredible and I think relative to the other ones like Bit Digital, we're going to touch on a little bit later. Relative to a lot of the other crypto miners it's got a lot better fundamentals. This would be my top crypto miner to look at it just based on its geographic location in the U.S. and its balance sheet right now.
There are differences among crypto miners. It is a higher beta one, which is interesting. If the market continues to decline, will Marathon dip harder? That remains to be seen. It has run pretty incredibly over the past three years. This is a sector to watch right now, I think.
Quast: Yes, definitely. Beta doesn't predict where the price is going to go is a historical indicator. This has been what has historically trended so far. If history continues to repeat itself, it's what you would expect. The market falls, you'd expect Marathon to fall harder.
What's interesting is, if you read the article, Anders, he points out that most of the months with these companies, with these stocks, they are not small moves. It was a 20% or more move up or down, like eight out of 12 months last year. There was a lot of months that it was up by 20% or more, but there was also several months where it was down 20% or more, really big swings.
For me personally, these bitcoin miners just haven't been attractive investments to me even though they have several of these. I don't believe Bit Digital, but definitely, Marathon beating the market by a wide margin over the past three years.
The reason I don't really like them is because you have the risk of Bitcoin in the first place and then you bring in a company that is the miner then you add in execution risks on top of it. I don't really see the point of that. I'm invested in Bitcoin personally and that's enough risk for me.
