Bitcoin and the Public Markets, 2/7/22: 53% BTC Correlation to Nasdaq Dropping as Equity Markets Stabilize; Equities Outperforming BTC
The correlation of Bitcoin to the Nasdaq is ~53% and dropping. In recent days, the S&P and the Nasdaq have stabilized following the late Jan selloff. As we noted, a large down day in the Nasdaq is a strong predictor of large Bitcoin price declines. Few such days in the past week have resulted in BTC correlation drifting downwards, but do not expect the relationship to stay uncorrelated when investors need it to be uncorrelated. This is consistent with our view that Bitcoin is still a risk‐on asset, notwithstanding the prevalent inflation hedge / digital gold / uncorrelated asset narratives in the space. It can get there, but it is not there yet. Please click here for the full report.
BTC drawdowns are deep and prolonged. Slide 8 shows that Bitcoin is only rarely within 20% of all time highs since 2014. In the same period, the S&P and Nasdaq have had only two, short lived bear markets.
The 18 publicly listed mining stocks trade at an average adjusted Enterprise Value per YE 2022 PH/s of planned capacity of $160k, up $30k since last week as Bitcoin price rose 13.5% WoW. Adjusted EV = Market Cap + Debt — Cash — Market Value of Crypto Holdings. Technically, pending capital expenditures needed to pay for future deliveries of announced rig purchases and ancillary equipment should be added back, but the lack of data led us to exclude this adjustment for consistency. Notably, miners like Hive that have relatively modest expansion plans, or Greenidge and Riot that have low power and operating costs, trade at a premium to the group. We also examined financials based on Bloomberg analyst consensus, finding that the companies that do have estimates trade at 3.5x 2022E EBITDA and 8.0x 2022E Contribution (Gross Profit + Depreciation). Considering our 327EH/s year end network Hashrate estimate, we suspect that consensus EBITDA estimates may need downward revisions unless Bitcoin price accelerates to new highs — not unlikely, but counter to the current trend. The multiples now look reasonably accommodative of a downward EBITDA recalibration.
Most public miners have underperformed Bitcoin YTD and have experienced an average drawdown of ~50% since Bitcoin peaked on 11/10/2021. Bitcoin is down 37% from that peak, which makes sense because of the loss of operating leverage as mining margins compress with BTC’s falling price.
Key Takeaways
Equity Markets
• Bitcoin’s correlation to the Nasdaq is about 53%, but the relationship is strongest when the Nasdaq is down a lot
• Recent stabilization in the equity markets has led to correlations drifting back downwards
• Bitcoin acts as a high‐beta risk‐on asset
Public Miners
• Unsurprisingly, public miners have underperformed Bitcoin as earnings expectations deleverage with margin compression
• On our preferred adjusted EV per PH/s metric, the miners trade at an average of $160k, up $30k from last week
• Low‐cost miners like Riot and Greenidge, balanced hosting/selfmining models like Core Scientific, and low‐growth miners like Hive trade at a premium to the group
• The less miner growth is in the future, the higher the multiple (R2 = 33%); this is quite unlike most traditional equities.
• Investors are paying up for operating capacity vs in the future
• Our YE network Hashrate estimate of 327 EH/s implies that either BTC price needs to accelerate, or that consensus EBITDA estimates need to be recalibrated down — but a modest 3.5x Adj EV / EBITDA multiple should be accommodative
