Why a Bitcoin ETF Is Making BTC Miners Nervous

By Andrew Throuvalas

With the first U.S. spot Bitcoin ETF seemingly in sight, it has seemed like the entire crypto industry is optimistic about how such a product could bolster Bitcoin’s legitimacy in the investing world, ignite institutional adoption, and send the price of BTC to the moon.

For the most part, that includes Bitcoin mining firms—companies that run large computer fleets dedicated to securing the Bitcoin network and earning newly minted coins. However, a key fact about the current Bitcoin investing landscape may leave investors in mining firms a bit concerned.

“We are optimistic about the ETFs, and there are indications it will be positive,” Isaac Holyoak, CleanSpark's Chief Communications Officer, told Decrypt. Mining stocks, he noted, tend to inherit Bitcoin’s positive momentum during bullish periods.

Though Bitcoin itself is up over 100% this year, public mining stocks have averaged even stronger returns – alongside other BTC-adjacent firms. Until now, such companies have acted as regulated, more traditional leverage plays on BTC for investors in the absence of an ETF.

Yet therein lies the rub: Though Bitcoin ETFs may appear promising, they may also suck capital away from stocks that investors have until now treated as the next best thing.

For their part, CleanSpark remains optimistic, keeping its focus on Bitcoin’s price. “Recent developments—both the false claim of an ETF and the hinting of one with the CUSIP listing—both spurred an increase in the price of bitcoin,” highlighted Holoyak.

Since most of a mining firm’s revenue stems from fixed BTC block rewards, a rising BTC price translates to higher USD-denominated revenue for the entire industry.

Anticipating higher future prices, Cleanspark has been dumping millions of dollars into mining equipment this year to give it the greatest competitive edge.

In an October mining industry report shared with Decrypt, J.P. Morgan equity analyst Reginald L. Smith labeled CleanSpark (CLSK) an overweight stock, thanks to having acquired hardware and facilities at “deeply discounted prices,” and running a highly efficient fleet. CLSK is up 122% year to date.

Another firm to make major infrastructure investments this year is Iris Energy (IREN)—a renewable-focused miner that’s particularly bullish on the upcoming Bitcoin halving. Smith also rated Iris shares, which are up 161% this year, as “overweight.”

“[The halving] historically involved an additional price catalyst as coins become even scarcer,” said Daniel Robert, co-founder and co-CEO of Iris Energy. “Add in a potential easing of macro monetary conditions over the next 6-12 months and we could be in for a very interesting period for Bitcoin."

Regarding an ETF, Roberts noted that SEC approval could open “substantial pools” of capital to the Bitcoin market, compounding with bullish effects from the halving and easing macro conditions.

A spot Bitcoin ETF differs from existing Bitcoin investment products in the United States, in that its shares would be directly redeemable for a fixed amount of BTC held by the provider and its partners.

“A spot ETF would be infinitely preferable to the fund options on the market today,” explained HIVE Digital CEO Aydin Kilic to Decrypt. “It would unlock this asset class for professional investors and retail retirement accounts.”

One of the primary options in the stock market today is the Grayscale Bitcoin Trust (GBTC), which has high fees and doesn't accurately track the price of Bitcoin.

Shares in the trust currently trade at a discount to the fund’s underlying BTC holdings. This discount has narrowed over time as confidence grows that the fund’s efforts to convert into a spot Bitcoin ETF will prove successful, and will vanish entirely if/when approved.

While some might prefer to purchase and personally hold BTC outright, many retail investors may be less comfortable with buying coins from crypto-specific platforms, which are often unregulated. Furthermore, as Iris’s Roberts elaborated, physical Bitcoin investment is outright impossible for many larger firms.

“Both institutional investment mandates, as well as those of general retail stockbroking services, often prohibit investment of client capital outside specifically defined instruments and securities,” he said. “An ETF is likely to solve this.”

After GBTC, some of these options include the crypto exchange Coinbase (COIN.;+120% YTD) and the futures-based ProShares Bitcoin Strategy ETF (BITO; +64% YTD). Beyond them, however, are the more than dozen publicly traded miners that have performed well against Bitcoin—so far.

In a podcast interview this week, J.P. Morgan’s Smith highlighted Marthon Digital and Riot Platforms—two of the largest Bitcoin mining companies—as indirect Bitcoin investments that may be inferior to an ETF.

“It gives you a cleaner play on Bitcoin than buying Riot or Marathon,” he said. “With that type of purchase you’re dealing with hashrate, outages, things like that.”

“It also could introduce a whole other realm of arbitrage opportunities, where maybe it's cheaper to buy Bitcoin outright and lever up versus buying indirectly through one of the miners,” he added.

When asked about this dynamic, Bitcoin mining firm and pool operator Foundry acknowledged how an ETF could produce “counterintuitive negative consequences” for the industry.

“Over the past few years, mining companies have been used as proxies to get access to Bitcoin exposure in the public markets,” said Alex Altman, CFA and Senior Manager of Corporate Development at Foundry. “It will be interesting to see how these new ETF vehicles will impact public miner valuations as investors will now have a more direct, cost-effective way to access the asset class.”

Edited by Stacy Elliott.

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