Regarding the future outlook of bitcoin miners generally speaking, our analyses above and conversations with multiple mining-focused companies indicate that as miners continue to enter the market and raise competition levels for block rewards and transaction fees, margins will as a result compress for all participants in the mining ecosystem. While this will allow the most efficient miners in bitcoin’s network to continue to operate at relatively healthy profitability levels, less efficient mining companies are likely to face considerable pressure in this future setting of higher mining difficulty and hashrates. As a result, our expectation is that we will see the less-efficient mining companies begin to diversify their businesses sooner rather than later in one of several ways. In particular, we expect that some miners will diversify their portfolio of cryptoassets that they mine to altcoins beyond bitcoin, while others will pursue different lines of businesses altogether, e.g., cryptoasset exchanges or advisory services.
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Bitcoin remains one of the most volatile assets in the world, digital or otherwise. It has been in a bear market since late last year and it is as yet uncertain whether the lows are in. The wild jumps and collapses in cryptocurrency prices have been chastening to many investors who must now be asking whether there is a better way of making money from what is a rapidly evolving sector where there are likely going to be more losers than winners.
If we approach this question from the old adage “in a gold rush, sell shovels” then there are two companies that immediately spring to mind that are benefitting from the demand for mining equipment.
Among its many other pursuits, Taiwan Semiconductor is supplying the chips and rigs for ASIC machines. The share has been trending consistently higher for the last couple of years but will need to continue to hold the progression of higher reaction lows if medium-term potential for additional upside is to be given the benefit of the doubt.
Nvidia is among the leading producers of GPUs which are used for mining Ethereum and a number of additional altcoins. It shares a high degree of commonality with Taiwan Semiconductor and needs to hold the region of the trend mean if medium-term upside is to be given the benefit of the doubt.