Bitcoin’s precipitous 2022 decline is creating collateral damage in other corners of financial markets, namely among crypto-correlated equities.
Obviously, bitcoin miners are part of that conversation, and some of those names are sporting larger year-to-date declines than the cryptocurrency itself. That’s confirmation that investors looking for value in this space need to be selective. The VanEck Digital Assets Mining ETF (DAM) is one of the exchange traded funds that can help investors accomplish that objective.
DAM, which debuted in March, follows the MVIS Global Digital Assets Mining Index and holds 24 stocks. Some of those names fit the bill as value opportunities among crypto-correlated equities.
“The stocks of companies that earn revenues through the mining of bitcoin, ether, and other proof-of-work digital assets have generally declined by more than 80% on average from their 52-week highs. Over the same time period, it appears bitcoin and ether prices have experienced a drawdown of around 65%,” according to Valkyrie research.
As the research firm points out, some bitcoin miners have cash on their balance sheets in excess of their crypto holdings — a trait that not only stems losses as bitcoin declines, but one that implies value as well.
Examples of bitcoin miners possessing cash in excess of crypto holdings include Hive Blockchain Technologies (NASDAQ:HIVE), Argo Blockchain (NASDAQ:ARBK), and Bitfarms (NASDAQ:BITF). Hive Blockchain is DAM’s third-largest holding at a weight of 6.6%, while Argo and Bitfarms combine for nearly 8% of the DAM roster, according to issuer data.
“While the price of bitcoin has fallen since the end of March, some firms have greater cash than crypto holdings, which reduces the losses on their balance sheets. HIVE, ARBK, and BITF are trading at trailing price-to-earnings ratios of less than three, six, and nine, respectively, but forward earnings are likely to be below trailing earnings,” added Valkyrie. “Stocks that are trading between 1.2 and 4.1 times trailing revenues fit clearly in the value camp, but do they have the ability to recover the losses in their stock prices?”
Indeed, some bitcoin miners are candidates for share price rebounds, while others are saddled with negative earnings, which could impair bounce-back ability. With that in mind, DAM could be the way to play the space because it eliminates the stock picking burden for investors.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.