ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Direct Indexing
    • Disruptive Technology
    • Energy Infrastructure
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Financial Literacy
    • Fixed Income
    • Gold/Silver/Critical Minerals
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Market Insights
    • Modern Alpha
    • Multifactor
    • Night Effect
    • Portfolio Strategies
    • Responsible Investing
    • Retirement Income
    • Richard Bernstein Advisors
    • Tax Efficient Income
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
  • Research
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF of the Week Podcast
    • ETF Prime Podcast
    • Video
  • Company
    • About VettaFi
    • Get VettaFi’ed
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Crypto Channel
  2. Grasping Bitcoin Miners’ Cyclicality
Crypto Channel
Share

Grasping Bitcoin Miners' Cyclicality

Tom LydonJul 13, 2022
2022-07-13

In financial market terms, bitcoin is a relatively new asset. As such, publicly-traded miners of the digital currency are even newer, but these assets are developing their own reputations for cyclicality.

Simply put, there are times, such as the present, when cryptocurrencies and miners are out of favor. Conversely, there are periods when these assets are desirable and thriving. Pinpointing when those shifts occur is difficult, as is stock-picking to that effect. That underscores the utility of exchange traded funds, such as the VanEck Digital Assets Mining ETF (DAM ).

DAM, which debuted in March, follows the MVIS Global Digital Assets Mining Index. The ETF isn’t foolproof in terms of steering investors away from bitcoin cyclicality — that’s a big ask. However, DAM remains useful on multiple fronts today, particularly with the prices of the largest digital currency retreating.

The 2021 bull market in bitcoin and miners, including DAM components, underscores the cyclicality of this asset class and why a broad approach for crypto-enthused equity investors could be useful.

“Since the price of BTC was going up, the demand for bitcoin had risen. In response, miners tried to increase their output. This meant placing new orders for infrastructure such as mining machines, some of which will arrive over the next couple of months,” reported Bitcoinist. “This over-investment in infrastructure in new production infrastructure had begun to overwhelm the market. Add in the fact that more players had made their entrance into the market, and the profits from mining had gone through a significant drawdown.”

As noted above, bitcoin is cyclical, and miners are likely to be pinched when it falls out of favor. It’s similar to what happens to traditional energy stocks when oil prices tumble. Investors are learning this lesson as falling bitcoin prices are leading to profitability concerns while prompting some miners to scale back production.

“The decline in profits, in turn, leads to a reduction in production capacity. Then profits begin to rise again, more players enter the space, there is an over-investment in production infrastructure, and the profitability drops again. Around and around it goes. Hence the cyclicality of bitcoin mining,” added Bitcoinist.

Last year was a record year for bitcoin mining revenue, but that feat won’t be repeated this year. Still, there are some glimmers of hope for DAM components, including declining valuations, financial resources to survive (in many cases), and dropping all-in mining costs.

For more news, information, and strategy, visit the Crypto Channel.

Loading Articles...
Our Sites
  • VettaFi
  • Advisor Perspectives
  • ETF Trends
Tools
  • ETF Screener
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Database Pro
More Tools
  • Financial Advisor & RIA Center
Explore ETFs
  • ETF News
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Information
  • Contact Us
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X