Spot Bitcoin ETFs present long-term competition for publicly traded cryptocurrency miners, according to a Galaxy Research report published Wednesday.

Galaxy analysts said that before these ETFs were approved, public mining stocks were one of the few ways investors could gain exposure to Bitcoin price increases.

However, with more sophisticated investors entering the market, miners must now showcase their earnings potential to effectively compete with spot Bitcoin investments.

“In the short-term, the approval of the ETF is likely to be a consideration for investors in evaluating whether to invest in public mining stocks,” analysts led by Galaxy Vice President of Mining, Brandon Bailey, wrote.

“Retail investors are likely to continue to view and trade miners as a leveraged long bitcoin trade with the ETFs as the primary benchmark for performance,” they added.

Institutions More Likely to Go Long Bitcoin ETFs, Short Mining Stocks

Meanwhile, in the short term, institutions appear inclined to favor Bitcoin ETFs over mining stocks. This trend has already started to play out since the start of 2024, the team observed.
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Bitcoin ETFs offer a regulated avenue for investors to tap into Bitcoin’s potential without directly owning the cryptocurrency. As these ETFs gain popularity, it could influence the demand for Bitcoin itself.

Galaxy’s report highlighted that this shift in demand could impact crypto miners. It could especially affect variables like Bitcoin’s value, mining profitability, and market sentiment. The team suggested considering how much money mining companies can make regardless of Bitcoin’s price fluctuations.

Mining Companies Face Share Dilution Pressures

The team also noted that mining companies’ stock prices may decrease if they decide to raise funds by issuing more shares. This is especially if investors believe they can get better returns by investing in the ETFs rather than in the company directly.

“However, bitcoin miners could benefit from the inclusion in a broader array of ETFs and fund products as well as research and coverage where those benefits outweigh some of the cons of increased competition from the Bitcoin ETFs,” they said.

In recent years, as the crypto market contracted, miners encountered considerable difficulties in maintaining profitability, prompting a new focus on hedging options.

Bitcoin miners explored these strategies to safeguard their revenue against the crypto market’s unpredictability. For instance, GSR initiated hedging products aimed at offering miners a more reliable income stream.

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