“Bitcoin and miners are fundamentally different investments,” Wang added, noting that returns “are related but will often diverge.”
Layers of Risk
Investors in Bitcoin largely need to worry only about price swings, alongside security, storage and other fees. Investing in a company also adds additional layers to consider, including the quality of the business and management, and wider market forces.
“It’s quite hard to do better than just holding Bitcoin itself, frankly,” said Vijay Ayyar, head of Asia Pacific with crypto exchange Luno in Singapore. “Owning an asset versus the business that produces that asset are quite different both from a cost and opportunity perspective.”
Gold, the historical standard store of value, is a case in point. The NYSE Arca Gold Miners Index, made up of shares in producers of the yellow metal, has fallen by more than 40% in the past decade; spot gold has climbed 20%.
Bitcoin miners also have to contend with sucking up more and more electricity to power the computer farms that produce the digital token. Regulatory and political scrutiny is another challenge.
For instance, China’s stock market largely missed out on the past year’s Bitcoin-fueled trading bonanza after a series of government crackdowns, including a 2017 ban on transactions between fiat and cryptocurrencies. More recently, China’s Inner Mongolia autonomous region banned cryptocurrency mining amid concern over energy consumption.
A Bloomberg-curated basket of some key Chinese blockchain-related stocks -- including Shenzhen Forms Syntron Information Co., Shenzhen Ysstech Info-Tech Co. and Brilliance Technology Co. -- is down about 12% so far this year as of March 12, according to data compiled by Bloomberg.
These companies are largely focused on using the blockchain technology that underpins cryptocurrencies rather than Bitcoin mining and trading. In contrast, Chinese Bitcoin mining rig maker Canaan Inc.’s U.S.-listed depositary receipts are up about 10-fold.
The attention on cryptocurrency stocks may get even hotter with the impending debut of exchange Coinbase. Coinbase’s listing “will be the true test of the public market’s appetite for the next Facebook and Twitter of technology,” said Jehan Chu, partner with crypto advisory and investment firm Kenetic Capital.
This article was provided by Bloomberg News.