Key Points
- Bitcoin miners are the best equity proxy for bitcoin, which is expected to reach $150,000, according to Bernstein analysts.
- Bitcoin miner stocks, particularly Riot Platforms and CleanSpark, are projected to perform well and offer high profit margins.
Bernstein analysts Gautam Chhugani and Mahika Sapra suggest that investing in bitcoin miners is the most effective equity proxy for bitcoin. They believe that as the largest cryptocurrency by market cap, Bitcoin is on track to reach $150,000.
Bitcoin Miners Outperforming Bitcoin
The analysts highlight that bitcoin miners typically outperform bitcoin during bull markets and underperform in bear markets. They argue for a through-cycle view, suggesting that we are currently midway through the 2024-25 cycle. They see every instance of miner weakness as a buying opportunity.
The analysts also note that bitcoin miner stocks are primarily driven by retail investors, with institutions generally avoiding bitcoin proxies. They argue that traditional equity investors remain skeptical and approach crypto with a rear-view bias. However, they see miners' underperformance during strong bitcoin days as opportunities, as bitcoin draws retail liquidity away from miners.
Riot Platforms and CleanSpark to Benefit
Chhugani and Sapra are particularly focused on Riot Platforms and CleanSpark stocks. They suggest that even if these companies' production costs were to double after the halving, Riot and CleanSpark would still generate around 70% and 60% gross profit margins, respectively. They also predict that any reduction in miner capacity post-halving would lead to these companies gaining relative market share.
Bitcoin halvings, which are programmed to occur automatically every 210,000 blocks, or approximately every four years, will see the reward subsidy for miners on the network drop from 6.25 BTC to 3.125 BTC per block. However, they will continue to earn additional transaction fees for each block mined.
As the Bitcoin ecosystem continues to develop through the addition of Layer 2/sidechain solutions, DeFi, and NFTs, the analysts expect the current 5% of miner revenue generated from Bitcoin fees to increase to a sustainable 15%.
Bitcoin Price Target of $150,000
Despite Bitcoin already trading past its previous all-time high of $69,000, Chhugani and Sapra expect a further breakout post-halving. They are now more convinced about their $150,000 bitcoin price target.
The analysts have incorporated institutional flows into their estimates to arrive at this price target. They initially expected $10 billion of inflows this year following the launch of spot bitcoin ETFs in the U.S. on Jan. 11 and another $6 billion in 2025. However, net inflows have already exceeded $9.5 billion, with an average daily run rate of approximately $370 million. If this continues, the spot bitcoin ETFs will surpass Bernstein's 2025 estimates within 166 trading days.
The analysts note that while the ETFs will ebb and flow, leading ETF issuers have not yet fully integrated with IRAs, private banks, wirehouses, and other traditional pools of capital such as sovereigns and pensions. They believe these are still early days of bitcoin's integration into traditional asset portfolios.
