On the Margin Newsletter: An update on crypto bills…and mining stocks

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Welcome to the On the Margin Newsletter, brought to you by Ben Strack and Casey Wagner. Here’s what you’ll find in today’s shortened holiday edition:

• An update from Capitol Hill and what the crypto industry is watching for.
• A look at bitcoin miners — and their share prices — two months after the halving.

Crypto’s time crunch

Election season is well underway, which means the political ads are ramping up and the lawmaking process is ramping down.

May was, generally speaking, a productive month for crypto legislation. The first-ever crypto-focused bill made it through both chambers of Congress with bipartisan support (the anti-SAB 121 bill) and a second bill passed the House with plenty of Democrats on board (FIT21).

Progress has now stalled, however.

Unfortunately (or fortunately, if you’re Gary Gensler), President Biden vetoed the SAB 121 bill (no surprise there, as a president always backs his agency heads).

As for FIT21, it is now collecting dust in the Senate. The bill’s advocates have conceded the Senate will make some changes, but a timeline for when it could be marked up — let alone voted on — remains elusive.

Senate floor time is gold, according to Blockchain Association government relations director Ron Hammond — and at the end of the day, it’s Sen. Chuck Schumer who calls the shots. Although, it’s worth noting that Schumer voted in favor of overturning SAB 121, so maybe he will prioritize getting crypto on the agenda after all.

Also in the Senate are rumors that Sen. Debbie Stabenow is trying to revive the Digital Commodities Consumer Protection Act of 2022 (DCCPA), a bipartisan effort to give the CFTC more control over digital asset commodities.

If that’s not ringing a bell, you might remember it as the bill SBF famously supported before FTX collapsed and he went to prison. If Stabenow really is trying to bring back DCCPA, let’s hope she has a solid rebranding plan.

— Casey Wagner

Mining stock update two months after halving

Today is Juneteenth. Less importantly, it marks exactly two months since the Bitcoin halving.

Most public miner stock prices tumbled in the lead-up to the event given the segment’s expected volatility fueled by lower per-block BTC mining rewards. Industry watchers, however, predicted investors would buy back into the category’s strongest after the dust settled.

So which miners might currently be positioned best in the post-halving environment?

Though not a perfect science, looking at miners that crypto equity ETFs are allocating to most is one way to gauge the segment players with attractive potential.

Core Scientific gets a vote as a seemingly appealing miner to hold right now (not investment advice).

The stock is the top holding in the Amplify Transformational Data Sharing ETF (BLOK) — the largest blockchain-focused equity ETF, with about $710 million in assets. It is also the top mining stock, by weighting, in the Bitwise Crypto Industry Innovators ETF (BITQ).

From market close on April 19 (halving day) to market close on June 18, CORZ shares were up 187%. That is in part due to a hefty stock price surge after the miner closed a big high-performance computing (HPC) deal set to give it a more stable, long-term revenue stream.

Roughly 5.3% of BLOK’s assets go toward CORZ, placing the miner ahead of Galaxy Digital, Coinbase and MicroStrategy. BITQ allocates nearly 10% to the stock.

CleanSpark and Marathon Digital were the other miners in BLOK’s top 10 holdings as of Tuesday (ranked seventh and 10th, respectively). Those stocks have risen 13% and 23%, respectively, since the halving.

CleanSpark continues to acquire bitcoin mining facilities, revealing Tuesday it was closing on five more in Georgia. Marathon — North America’s largest public miner by self-mining capacity — often touts its big balance sheet and global expansion efforts.

A crypto ETF focused more exclusively on the mining category — the Valkyrie Bitcoin Miners ETF (WGMI) — has a big bet on two miners in particular. The fund has a 19.3% allocation to Iris Energy, while its stake in CleanSpark is just north of 14%.

Iris Energy (IREN) is also the top holding in the Global X Blockchain ETF (BKCH).

Like Core Scientific, Iris Energy is another company building out its AI cloud services business. It also has said it intends to double its hash rate this year. IREN shares were up 181% since the halving, as of Tuesday’s market close.

BlackRock’s iShares Blockchain and Tech ETF (IBLC) has a nearly 11.4% position in CleanSpark — second only to its 12.6% stake in Coinbase.

IBLC has miners littered across its top holdings, with Iris Energy and Marathon Digital following CleanSpark. Hut 8, Core Scientific, Cipher Mining, Terawulf and Bitfarms are further down the list, but within the top 10.

Though in BKCH’s top five holdings, Riot Platforms is not a top 10 holding in most other crypto equity funds. RIOT has risen nearly 17% since April 19, but is down about 3% in the last month.

Riot has expressed interest in acquiring Bitfarms — proposing a deal in April that Bitfarms ultimately rejected. We continue to keep an eye on developments there and the impact such a transaction could have on the sector.

— Ben Strack

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