Bitcoin and the Public Markets, 3/7/22: BTC Underperforms on Risk-Off Follow-Through; We Flag Estimate Risk for Public Miners on Hashrate
Macro markets remain in risk off mode and Bitcoin is no exception. The correlation of BTC to the Nasdaq Composite is still hovering at 54%. As we noted last week, the Russian invasion of Ukraine led to a large sell off in risk assets, while commodities have rallied. The largest gainer in our tracked basket is Wheat (both Ukraine and Russia are large wheat exporters), although oil has also rallied on the potential for sanctions on Russian oil (slide 3). Bitcoin, Ethereum and Euro Stoxx 50 round out the worst performing assets WoW. Click here for the full report.
Markets expect volatility to continue — realized volatility remains at 71% today, the same as a week ago, but 30-day at the money implied volatility only jumped to over 69% vs. 56.8% last week (slide 4). Realized volatility is currently 1.4% points above implied volatility.
We updated Hashrate and bitcoin holdings for the 18 publicly listed miners tracked in this weekly. As a group, they now operate 34 EH/s, and are expected to achieve 125 EH/s of hashing capacity by year end / early 2023. If they can achieve this growth, it would represent ~ 70% of the Hashrate growth between the now and our YE estimate of 327EH/s. This suggests that either the semiconductor and power infrastructure supply chain constraints could ease, leading to upside to our network Hashrate estimates, or that the public miners could face some delays and shortfalls on their projections. In a future report, we plan to assess the potential impact of such delays / shortfalls or an upside surprise on network Hashrate on consensus estimates in the space.
The 18 publicly listed mining stocks trade at an average adjusted Enterprise Value per YE 2022 PH/s of planned capacity of $90k, adjusted down on updated balance sheet crypto holdings. Adjusted EV = Market Cap + Debt — Cash — Market Value of Crypto Holdings.
Notably, miners like Hive that have relatively modest expansion plans, or 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 3.0x 2022E EBITDA and 6.5x 2022E Contribution (Gross Profit + Depreciation). Consensus estimates (slide 16) call for $3.2B in EBITDA (11/18 miners) on ~$4.9B in revenue (estimates on 13/18 miners). 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.
Our institutional fund flow section covers 19 funds with $23B of AUM. GBTC, an ETP, is 75%+ of the group, and has seen no inflows recently. The others are mostly crypto-exposed equity ETFs with a broader innovation focus — ProShares BITO Bitcoin futures fund excepted.
Over the past week, funds have seen a $21mm in net redemptions (slide 21). BITO saw a $41mm redemption on 2/24 alone, in line with the broader risk off markets following the Russian invasion, but saw $14.4mm in net inflows last week. Year-to-date, overall outflows across the selected funds we track were $282mm (slide 23).
The futures curve is flat through May, with little liquidity beyond (Slide 27). According to the 3/1 Commitment of Traders report, Non-commercial Net Length expanded to 517 lots (slide 29) despite an overall fall in open interest led by both spreading and Leveraged players (slide 28).
•Bitcoin is acting as a high beta risk asset, selling off with equities while commodities continue to rally
•Markets expect volatility to continue — implied volatility has now risen to meet elevated realized volatility
•Updated BTC holdings and operational Hashrate metrics for the 18 tracked public miners show that on our preferred adjusted EV / PH/s metric, the miners trade at $90k per PHs
•Public miners’ guidance constitutes ~70% of the Hashrate growth to our 327EH/s YE 2022 target — implying either downside risk to their guidance or upside to our network target.
•Over the past week, funds have seen $21mm in outflows, taking YTD outflows to $282mm year-to-date, led largely by ARKW (outflows of $3.1B over 12 months / $360mm YTD)
•CME futures positioning is 517 lots net long for non-commercial players even as open interest has dropped 2.7% WoW