An Advisor's Guide to Bitcoin Mining Profitability

Oil drilling and oil rigs are a comparable business model, according to Rene Reyna, head of thematic & specialty product strategy at Invesco. Based on operational costs, oil needs to be traded at a certain price per barrel in order for the company to be profitable.

Similarly, in the bitcoin mining world, another capital-intensive business, a strong determinant is the timing of when an organization got into the space and how it is managing debt, Reyna said.

“What we’ve seen [with] a lot of these public companies is if they are purchasing new rigs, they’re doing it with bitcoin, or they’re borrowing and paying back with bitcoin in a year’s time,” Reyna said. “Their debt positions aren’t as challenging as more of your sort of traditional corporations or factories that may finance debts five plus years or three plus years out, wherever they may be.”

Due to this, Reyna said that while crypto miners are highly correlated to the price of bitcoin, they do not necessarily need bitcoin to be at $67,000 to be profitable. When these companies look at what levels they can be profitable at, in some cases, there are break-evens right around $7,000. 

“Anything above that is sort of margin positive, and so I would say that generally, you’re seeing probably $20,000 to $25,000 is where we see some of those profit levels,” Reyna said. “So these miners can still be relatively attractive buys [and have] attractive valuations even at today’s levels based on where the markets currently traded at.”

Reyna noted that there are a couple of different approaches an investor can take to get exposure to underlying publicly traded crypto ecosystem equities that include companies that are using the blockchain for non-crypto purposes. 

Funds to consider include the Invesco Alerian Galaxy Crypto Economy ETF (SATO) and the Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BLKC).

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