HTX’s Post

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The currency itself this year, as you can see, but a new report suggests these businesses could be in for in store for a huge boost thanks to of all things well, what what else these days artificial intelligence. So here to explain is Matthew Siegel Vanex head of digital assets research. This is an interesting development here because usually we talk about underlyings and the miners and things and how these things are supposed to be more high beta, bigger returns. What gives between that relationship with Bitcoin the underlying versus the miners? Yeah, there's been a huge divergence year to date. Bitcoin's now up say 35%. These Bitcoin miners are essentially flat. So typically they are the higher beta plays on Bitcoin and in the latest downdraft they sold off quite a bit and we think the markets missing a pretty strong underlying fundamentals. Why are they been selling off? Just lack of interest, high beta, the unwind of the carry trade like nothing specific that has to do with the Bitcoin miners that we can see and. What we do see is that week after week, these companies keep announcing new deals with AI companies, hyperscalers. We've seen at least four Bitcoin miners announced close to billion dollar revenue deals to transfer their energy to power AI, right? So we know that GPU's take about twice the power as CPU, and we know that it takes about four years right now to connect to the grid. In many locations, these miners have grid connections. And with a little bit of CapEx in some of these locations, they can repurpose these facilities in less than one year. The time value of that money, bringing that capacity on three years earlier is huge. And these are typically companies with, I have to say it, bad balance sheets, either lots of debt and they all went bankrupt last cycle or just continually issuing equity at the market. What these AI bids are doing is lowering the cost of capital and providing a more sustainable financing stream for these companies. So on our numbers, if they were to repurpose just 20% of their electrical capacity, we think the stocks can double with no change in the Bitcoin mining profits. So the numbers look very compelling. Alright, Matthew, help me with this. We just spent some time talking about the DX. So that's the ETF that you guys are the issue of. OK, that's the gold miners. And so when we talk about gold also, you know, we've had this huge move in the dollar lower, which I know 4% doesn't sound like a lot in six weeks or so. It's a big move. We've seen gold make new incremental highs while the dollars. Making, you know, relative lows over the last few months. But one thing that's not participating in this move is Bitcoin right now. So, you know, it's had a series of lower highs, a series of lower lows. How do you like explain that disconnect between what gold's doing right now and the way that bitcoins been acting over the last couple months? Yeah. So a few factors are at play. One is the unwind of various carry trades and growth, which has been struggling a little bit. And when you look at bitcoins correlation with the NASDAQ, it's at a two year high. It's well below the highs that we had. In kind of late 2022, but it's a two year high. The second reason is there are 4 sellers in the market. The German government has sold all of its Bitcoin $2 billion worth. the US government is selling Silk Road related coins. There are two major bankruptcies where creditors have just been paid out that's Mount Gox and Genesis. So with all this for selling behind us and this is a typical seasonal pattern where Bitcoin tends to struggle in the kind of one to three months after the having which was in April and right pre election. As the market comes to grips with whatever candidate wins, we're in for four more years of reckless fiscal policy. The the history is that Bitcoin really hits its stride at that point. So we're, we're buyers here. We think it recovers. So can you connect the dots for us right now given everything you've said? The AI trade on this particular move is linked to the power usage and the conversion factor and how to actually make that work. I would argue if you look at a stock like NextEra Energy on the utility side, that has been a derivative AI play as well on this. How do you connect those dots? Simply simply about the AI trade versus the Bitcoin miners? The data center companies are trading at north of 30 times $30 million per MW of electrical capacity that they control $30 million. The Bitcoin miners are trading at $3,000,000. Right. So now it's not a complete one for one transition. They need to find customers. They need to buy the GPU's or have it someone else by the GPU's and install them. But there is an enormous arbitrage and the companies that have been most aggressive on this year to date, Core Scientific, Tara Wolf, Iris Energy. Those are the stocks that have outperformed. We just had another one after the bell at 4:00 PM today. BTBT $700 million AI deal. Our hunch is that as more of the used Bitcoin miners make these announcements, those will be the stocks that outperform because it brings their cost to capital down. Alright. It's an interesting trade for sure. Matthew. Thank you very much for bringing that to us here. We appreciate it.