The managers of digital asset manager Valkyrie’s just-launched Bitcoin Miners ETF (WGMI) are betting heavily on publicly traded miners that primarily rely on renewable energy since it expects them to prevail over their peers.
“We believe that companies that are focusing on more renewable energy sources are going to win in the end,” as alternative energy sources such as hydro-electric, solar and natural gas will be able to provide better cost savings to miners as opposed to traditional sources of energy such as coal, the fund’s CIO Steven McClurg told CoinDesk. He added that “coal energy is going to cost a whole lot more in the future.”
“We found that these mining companies [that are using mostly renewable energy], have already gone the extra step versus other initiatives such as carbon neutral pledges and they tend to maintain a lower overhead, because renewable energy often costs less than other sources,” he added.
Valkyrie Bitcoin Miners ETF started trading on the Nasdaq Tuesday under the ticker “WGMI” and shares were up 0.8% in early trading. The fund comes with an expense ratio of 0.75%.
The fund’s mandate is to invest 80% of its net assets in miners that derive a minimum of 50% of their profit from bitcoin mining and are primarily using renewable energy. Valkyrie notes the miners in the fund’s portfolio use about 77% renewable energy, compared to average renewable energy usage throughout the U.S. of 31%. The top five holdings of the fund (all with allocations in the 8% to 10% range apiece) are Argo Blockchain (ARBK), Bitfarms (BITF), Cleanspark (CLSK), Hive Blockchain (HIVE) and Stronghold Digital Mining (SDIG).
The fund also invests in chip companies that help manufacture mining rigs. Some of the holdings include Nvidia (NVDA), Samsung Electronics (SSNLF) and Taiwan Semiconductor (TSM).
Mining remains profitable
Aside from its mining-focused ETF, Valkyrie also has two other ETFs that provide investors direct and indirect exposure to bitcoin. The Bitcoin Strategy ETF (BTF), which was launched last year, invests primarily in bitcoin futures. Meanwhile, Balance Sheet Opportunities ETF (VBB), which debuted in December, focuses on public companies that invest in bitcoin.
The decision to launch another ETF in the digital asset sector was based on the idea that miners using alternative energy not only give investors exposure to a very profitable business but also to a lot of innovations in renewable energy usage. “We thought that it was a really good time to enter this market given the potential profitability and innovative things miners are doing on the renewable side,” McClurg said.
In fact, Wall Street investment bank D.A. Davidson’s analyst Chris Brendler wrote in a research note on Monday that mining remains very profitable with gross margins over 80%, even as the hash price, a measure of daily revenue per terahash of mining computing power ($/TH/day), has fallen to about $0.20 from peak of $0.40 as crypto prices have fallen.
Meanwhile, The Bitcoin Mining Council (BMC), a global forum of bitcoin mining companies and others in the industry, said a new survey showed that bitcoin miners are now utilizing a 66.1% mix of sustainable energy for their mining operations. BMC estimates that the global mining industry’s sustainable electricity mix grew to about 58.5% in the fourth quarter of 2021, up 1% from the third quarter, making it one of the most sustainable industries globally.