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Are Mining Stocks Undervalued Relative to Bitcoin?

After a prolonged bear market, the total market cap of mining stocks relative to bitcoin hasn't been lower since 2020. This article shows how this number has changed over time and discusses whether it could indicate mining stocks are undervalued.
Are Mining Stocks Undervalued Relative to Bitcoin?
Source: CoinGecko, Tradingview

Many bitcoin miners went public over the past couple of years, leading the public miners' share of the hashrate to surge to 25% from only 10% in October 2021. With public miners controlling a sizeable portion of the hashrate, investors who fundamentally believe in Bitcoin can get exposure to mining through the public markets.

Since miners operate within the Bitcoin ecosystem and compete for a limited amount of block rewards, the total industry size should theoretically be constrained relative to bitcoin's market cap. Last week, we showed how trading volumes of mining stocks relative to bitcoin have plummeted over the past year. We do a similar analysis in this article, focusing on the market caps. First, we show how the total market cap of mining stocks versus bitcoin has developed over time and then discuss whether our findings indicate mining stocks could be undervalued relative to bitcoin.

The total market cap of mining stocks exploded in 2021 but has fallen steeply for the past year

At the beginning of 2021, there were only a handful of publicly listed bitcoin miners with a total market cap of $6 billion. Fueled by a wave of institutional adoption and growing demand for publicly traded bitcoin investment vehicles, these first-moving public miners were highly successful in attracting investors.

Private miners quickly took notice of the favorable market conditions, and many went public in 2021. All these public listings took place simultaneously as bitcoin went on a legendary bull run. The total market cap of the public miners naturally exploded, peaking at $30 billion in November 2021.

Source: CoinGecko, Tradingview

In November 2021, the risk-on sentiment the market had become used to since mid-2020 quickly turned to risk-off, and investors began allocating capital away from bitcoin mining stocks. Due to reduced investor interest and falling share prices, many private miners postponed or canceled their plans to go public. In addition, the public miners suddenly found it more challenging to raise equity.

The combination of these unfavorable forces pushed the total market cap of public miners down by 90% from $30 billion to $3 billion. During the same period, bitcoin's market cap fell from $1.2 trillion to $311 billion – a decline of 75%.

Source: CoinGecko, Tradingview

While the previous chart showed us the absolute change in market cap, the chart above shows the relative change from January 2021. At its peak in November 2021, bitcoin's market cap had increased by 130%. During the same period, the total market cap of mining stocks surged by 350%. This divergence tells us that although mining investors experienced some dilution on the way, holding mining stocks during the bull run was more favorable than owning bitcoin.

Still, when the bitcoin price started falling, the high-beta property of mining stocks showed its downside, as these stocks got hammered relative to bitcoin. They are highly correlated with bitcoin but move harder in each direction.

The total market cap of mining stocks has historically hovered between 1% and 2.5% of bitcoin's

As explained in the introduction, the total market cap of mining stocks should theoretically be within a specific percentage range of bitcoin's market cap. If this number sits at the lower end of its historical range, it could signal that the sector is undervalued. Let's take a look.

Source: CoinGecko, Tradingview

In January 2021, before the bull market took off, mining stocks made up only 1.2% of bitcoin's market cap. Fast forward to peak euphoria in November 2021, and mining stocks had grown to make up 2.5% of bitcoin's market cap.

After a one-year-long bear market, this number now sits at only 1% - the lowest since 2020. The most obvious takeaway is that mining stocks have been the victims of a much more brutal sell-off than bitcoin itself. Throughout its 13-year history, bitcoin has, on multiple occasions, proved its cyclicality. Bitcoin mining stocks are following these bitcoin cycles with higher volatility, and have now pulled down to historically low territories relative to bitcoin.


As most know by now, mining stocks are high-beta bitcoin investments. These stocks' total market cap has historically tended to stay within a specific range of bitcoin's. At the peak of the previous bull market, this number reached 2.5% before brutally falling to 1% as mining stocks got hammered in the bear market.

The current low market cap of bitcoin mining stocks versus bitcoin indicates that they are undervalued relative to bitcoin. Nobody knows with certainty when the bear market will end. Still, we are confident about one thing: when the tide turns, mining stocks are tremendously positioned to outperform both bitcoin and most other assets due to their current depressed valuations.

Long-term believers in Bitcoin now have the opportunity to get financial exposure to the network's most critical infrastructure at historically low prices relative to bitcoin.

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