Bitcoin miners make up about 42% of the $CRYP ETF. One should pretty much consider this a Bitcoin mining ETF.

This is important, as Bitcoin mining is a highly cyclical business. The interesting part of its cyclicality, is that the cycle is highly predictable, unlike the commodities cycle.

I have done an analysis of Bitcoin, and Bitcoin miner returns over the past two cycles. Note: I have only analysed miners over the 2020 halving cycle (couldn't get reliable data for 2016 cycle), using $MARA, $RIOT, $HUT, $CLSK as miner samples.

What this analysis indicates is you buy $BTC miners about 6 month prior to halvings, and exist 12-18 month post halving. Miners, on average, outperformed $BTC by about 5x over the last cycle during this window. However, holding miners outside this window will destroy ones capital. Refer below for relative returns. The yellow and grey lines are $BTC returns, and the green line is the average return for the sample miners:

DISC - I don't own $CRYP, but own $CLSK.

I've had a small stake in CRYP for a while and am curious about the ~20% drop in the last couple of trading days.

I was (naively, it appears) expecting a rally around the approval of Bitcoin ETFs, which did happen albeit very temporarily.

Could someone a little more clued up than me in this space enlighten me regarding the key drivers? My leading theory is that its holding of Coinbase is driving it down. And Coinbase is losing value because there are now more alternatives available for holding crypto (ETFs), reducing reliance on Coinbase and similar operators.

Microstrategy issued over 1 million shares to raise $600 million USD to buy more Bitcoin.

"On December 27, 2023, MicroStrategy Incorporated (“MicroStrategy”) announced that, during the period between November 30, 2023 and December 26, 2023, MicroStrategy, together with its subsidiaries, acquired approximately 14,620 bitcoins for approximately $615.7 million in cash, at an average price of approximately $42,110 per bitcoin, inclusive of fees and expenses. As of December 26, 2023, MicroStrategy, together with its subsidiaries, held an aggregate of approximately 189,150 bitcoins, which were acquired at an aggregate purchase price of approximately $5.895 billion and an average purchase price of approximately $31,168 per bitcoin, inclusive of fees and expenses"

Microstrategy, which is a 8.5% holding in $CRYP, was up 11.5% on the announcement.

Given that bitcoin miners make up a big chunk of the CRYTPO ETF, it is worth considering

Given that we are still 4 months out from the next Halving, & with global liquidity rising, we are most likely in the first half of a digital asset bull market.

There are a few interesting dynamics at play when it comes to Bitcoin miners:

1) Transaction fees have significantly increased as a result of increased transactions and the emergence of Ordinals NFTs. Transaction fees are up 1000% over the past 3 months.

2) Bitcoin miners need to sell Bitcoin rewards in order to fund their operations. For example, Marathon Digital Holdings sold 60% of Bitcoin mined to fund operations in Q3 2023. However, as the Bitcoin price rises and the transaction fees increase, they will be able to reduce the percentage of Bitcoin sold as the bull market develops.

3) Bitcoin price is up approximately 50% over the past 3 months.

What this all means is that Bitcoin miner revenue is likely to double in Q4, digital assets on miner balance sheets will increase 50% in value, and this will also result in miners selling far less bitcoin to fund operations. The resultant reduction in Bitcoin supply will also put upward pressure on the Bitcoin price - a virtuous circle........

DISC - Held in Strawman only....

1 Month on.. Here is CRYP etf today

Some Bitcoin mining wisdom below:

As of January 2023, 19.3 million bitcoins have already been issued, with about 1.7 million bitcoins still to be released.

Year 2140 is the time limit for mining.

What Happens to Bitcoin After All 21 Million Are Mined? (investopedia.com)

Below CRYP:

CRYP ASX | Crypto Innovators ETF | Betashares

A look at Australian (listed NASDAQ), IRIS:

IRIS ENERGY web site:

Home (irisenergy.co)

The process is simple and essentially:

1. Mine Bitcoin
2. Sell Bitcoin
3. Pay energy bill and overheads

May '23 Iris Energy Investor Update

Bitcoin mining (gcs-web.com)

CRYP had a purple patch when the American Regional banks were imploding from the swift rise in interest rates via FOMC - "lower inflation policy"

Silicon Valley Bank & others invested in the Tbonds then they had liquidity problems. I believe.. The swift rise in interest rates didn't allow for the investments to mature,

2924-02673418-2A1453369 (markitdigital.com)

CRYP 1 year chart Below:

Web site: CRYP ASX | Crypto Innovators ETF | Betashares

Fact sheet: CRYP-Factsheet.pdf (betashares.com.au)

Betashares have provided retail investors with a diverse range of good investment products over the last 10 or so years. Consequently, retail investors trust the brand and the products they provide.

Recently Betashares has unleashed a stream of "thematic" ETFs, which to put it frankly, have been dog shit (this one chief among them).

Be sceptical of thematic ETFs, particularly if they are focused on a buzzword and have little track record. Also ignore back-tests/past performance as a measure of an ETFs worthiness in your portfolio.

Goodluck to anyone still holding this.

I’m performing a purely speculative doubling down on this one today. I’ve become more convinced in Strawman’s thesis for this asset class — buy the dominate player (ie Bitcoin) — and, further, in his broader argument about the uniqueness of Bitcoin vs any other cryptocurrency.

I’ve also now realised that this ETF is a very, very imperfect instrument for doing that. But, since I’m in already I might just hold on long enough to get any return on my capital from any significant recovery in the broader crypto space in the next year or too. The only Australian ETF I could find purporting to track BTC directly is not ASX listed. So, my sloppy thesis is that any big move in sentiment in Bitcoin will see a similar momentum in the exchange platform layer that this ETF (CRYP) has some exposure too. Then, if it works or doesn’t, I sell.

My IRL crypto portfolio is mercifully small (because I don’t love this space as ‘investment grade’, most of it has been lost, AND — with last financial year being the first time I showed a real interest — I’m now undergoing the administrative tax return nightmare that is the retail investor’s experience with attempting to comply with the ATO’s treatment of crypto. This last aspect has actually made me grateful for my losses). I initially added this ETF to reflect its place on my Strawman scorecard and I am now also slowly transitioning from various $hitcoins to BTC with a speculative long-term strategy (and I plan on keeping better cost-base records of the same!)

Appreciate you taking the time to share your thoughts Strawman. Great information.

@KashyBoy my realisation with this ETF is that -- as much as I think this is a fascinating space -- it's still way too early to know who the winners will be. It's like tech stocks in the late 90's, or crypto tokens a decade ago.

With these kind of things, my insight is that the only thing that matters are network effects. These tend to be winner take all markets (or, at least, a very small handful of winners).

When technology creates new markets, where network effects rule, the strategy is simple: Buy the dominate network, and hold.

It wasn't clear at the beginning, but after a while it was pretty obvious (or, at least, it should have been) that Amazon dominated data centres and online retail. Google dominated Search. Facebook dominated Social. Netflix dominated streaming. Apple dominated consumer hardware etc. Here at home, CarSales dominated automotive classifieds, REA Group dominated property. Xero dominated accounting. Technology One dominated mid-tier enterprise. ProMedicus dominated medical imaging.

As the structural shift played out, these where the ones to hold. I only wish I understood that better at the time. These days, the big markets have been stitched up, and the opportunities are more in niche sectors (I think Pointerra is, perhaps, a good example). Anyway, i digress..

But when I look at the crypto landscape, i cant see what companies so far dominate and have built serious moats. (Microstrategy -- one of the core holdings of the ETF -- is a bit different, but mainly because of its treasury. Plus, I think Michael Saylor is very smart.)

Bitcoin miners require huge capital and scale, and face all kinds of risks associated with power prices, chip improvements etc. Exchanges (like online equity brokers) have little to no competitive advantages. A lot of the other companies represented by this ETF are just pure speculation.

That'll change, and it means that some of the very early gains will be missed. But the alternative is to speculate, and that's not what I like to do.

What's more interesting at this point, for me at least, are the various blockchain networks themselves. It seems to me that Bitcoin is clearly the dominate network, and in terms of which coin will ultimately hold the mantle of digital global reserve asset, it's game over. Ethereum looks like it'll win the race for smart contracts. All the rest will lose (unless they pivot to a useful layer 2 eg Lightening Network. Perhaps some other niche use cases).

So if you like the space, the answer is just buy Bitcoin :) It's a lot cheaper now than it was a little while ago!

Anyway, just some ramblings. Not advice! (the large majority of my assets remain in equities)

I can’t believe how bad this ETF has gone. It just keeps going down. And down. Is anybody holding? I know Strawman got out. I was hoping to ride it out but there won’t be much left to ride if it keeps going the way it is. Appreciate any thoughts.

Something interesting to note from the outstanding units in the CRYP fund.

Increasing interest in CRYP..... even though the asset values were in freefall during this time.

Nov = 14 million

Dec = 16.1 mill

Jan = 18.1 mill

Here are the numbers for NDQ just for interest (arguably a very different beast - conservative, long history etc)

Nov = 75.1 mill

Dec = 78.1 mill

Jan = 78.1 mill

And here is their latest Cloud computing ETF

Nov = 4.6mill

Dec = 4.8 mill

Jan = 4.7mill

Just thought others might want to reference BITQ - Bitwise Crypto Innovators ETF listed on NYSE May 2021. Top holdings of Betashares CRYP is the same really. I suppose 6mths of data is better than none ?

CRYP = 0.67% management fee

BITQ = 0.87% mgmt fee

Coinbase is about 10% of the CRYP ETF, so a key contributor to performance. Key metrics:

• Trading Volume: $327 BN, up 616% on PCP, but down 29% on prior quarter.
• Revenue: $1235 M, up 230% on PCP, but down 39% on prior quarter.
• Net income: $406 M, up 300% in PCP, but down 75% on prior quarter.

Coinbase's results are highly variable quarter-to-quarter, and dependent on the Crypto market, which is incredibly volatile. They reported Coinbase decline in trades is no worse than the wider market (i.e. not losing market share).

Guidance

October trading volume is at a record high, and they have upgraded annual guidance.

NOTE: Coinbase is down 10% in after hours trading - suggest those interested hold off buying CRYP until Thursday....

One interesting graphic from their letter is below, and compares Crypto adoption to internet adoption.

Investing in cryptocurrency is not for the faint of heart. Nor is investing in Coinbase, a popular crypto-trading platform. Investors will watch its quarterly reports, released on Tuesday, nervously. After going public in April the company’s share price fell amid investor skepticism and declining cryptocurrency values. It started to rise in late September after Coinbase began broad changes, such as announcing that it will let users trade non-fungible tokens. 

Some of the company’s performance depends on cryptocurrency prices. An index fund tracking the ten largest shows they are worth slightly more than in mid-August, though that came after a fall. Coinbase also faces growing competition. Companies like Robinhood, a retail-trading platform that does not charge fees, have started to offer crypto services. To keep its edge, Coinbase last week announced a subscription model without fees for each trade. Is that enough to win the hearts of investors?