Cryptocurrency mining is still a young industry and for the vast majority of the time this has been an investable space, investors have associated these firms with, well, cryptocurrency prices.
That’s certainly true of many of the stocks that populate exchange traded funds, such as the Invesco Alerian Galaxy Crypto Economy ETF (SATO). The bulk of SATO’s holdings are pure play miners, many of which mine bitcoin. As such, shares of those companies are intimately correlate to spot bitcoin prices. So goes the largest cryptocurrency, so goes miners’ stock prices and so goes SATO.
Those high correlations to bitcoin for SATO member firms when the digital currency is rising, but that’s a two-way street. When bitcoin falters, miners usually follow suit or overshoot to the downside. That is to say there are risks in owning bitcoin miners, but some of those risks can mitigated by the companies themselves if they diversify their revenue streams. It appears some SATO holdings are learning lessons from the crypto winter of 2022 and doing just that.
SATO Holdings Leveraging Computing Power
Crypto mining is a technology-intensive industry, which is to say miners, including SATO components, have more tech competencies than investors give credit for. Those include high-performance computing, or HPC. The largest equity holding in SATO, Hut 8 Mining Corp. (HUT), is making inroads in the HPC realm.
“Hut 8, best known as a bitcoin mining company with facilities in Alberta, Canada and Texas, is a great example, he says. Thanks to its high capacity computing infrastructure, Hut 8 recently signed a contract to provide HPC for clients in Canada’s health sector,” reported Darren Kleine for Blockworks.
Such forays are still in their early innings because while there are similarities between crypto mining and HPC, these pursuits are not identical twins and SATO components must make different initial investments to deliver for HPC clients than they do when spending to hone mining operations.
In addition to the diversified revenue streams SATO components can realize by pursuing businesses beyond mining, there are other potential benefits. Courtesy of Blockworks, Avi Felman, head of digital asset trading at GoldenTree, noted that as miners diversify their business models, they may not be forced to sell large amounts of bitcoin during bear markets akin to what was seen last year. Said another way, spot bitcoin prices could be aided by miners finding alternative avenues for generating top-line growth.
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