Bitcoin prices do not need to be sky-high for a mining company to be profitable — in fact, even at today’s levels, miners are still attractive buys.
Bitcoin dropped below $33,000 on Monday, and has been steadily declining since last week’s broad market sell-off, in which the Dow Jones Industrial Average and Nasdaq Composite posted their worst single-day drops since 2020.
Many investors are viewing this as an ideal buying opportunity for digital assets, as the asset class is inherently volatile. Digital assets have seen years of tenfold growth and other years with more than 80% losses. In 2020, bitcoin returned nearly 303% — the following year, in 2021, it returned over 57%.
The Invesco Alerian Galaxy Crypto Economy ETF (SATO) is an offering that includes exposure to miners.
According to Rene Reyna, head of thematic & specialty product strategy at Invesco, oil drilling and oil rigs are a comparable business model to crypto miners; 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. The baseline figure for profitability, however, is a lot lower than what many investors expect.
“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.”
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