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Secrets to Easily and Successfully Trade Bitcoin Mining Stocks

I have invested in Bitcoin miners for several years, while writing about the best ways to generate solid returns from them.

Investing in Bitcoin Mining Companies

secrets-to-easily-and-successfully-trade-bitcoin-miners

Bitcoin Miners and Investing Success

I've traded Bitcoin (BTC-USD) miners numerous times over the last several years, and I've found when interacting with, or reading what some investors talk or write about them, they are confused over the best way to analyze the companies in order to make the right investing decisions.

In this article I want to show how simple it is to understand what moves the share price of Bitcoin miners, and what the two major things investors need to know before taking a position in them.

Let's look at the chart below to give you a hint.

Bitcoin Miners' Share Price Against Bitcoin Price Movement

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Bitcoin miners: Charts don't lie

When I've written about the simple ways to understand investing in Bitcoin miners, at times there has been pushback because of the simplicity of the knowledge, along with ignoring the fundamentals with the exception of one.

As you can see from the chart above, all of these companies move totally in correlation with the price of Bitcoin, with the occasional short-term anomaly. But even when there are outlier price moves, they quickly snap back and move in conjunction with the price of Bitcoin.

In other words, as it relates to the share price movement of Bitcoin miners, there really is only one thing to watch: the price of Bitcoin itself. It really is as simple as that.

Even so, there is one more thing to consider in order to be sure investors are mitigating their risk.

Balance Sheet Strength

The other element to consider when investing in Bitcoin miners is the balance sheet of the companies, specifically their cash and cash equivalents, along with access to capital. The reason for that is a company needs to have cash on hand and access to capital in order to be able to continue to mine Bitcoins.

If any of them are in danger of running out of money, there is the possibility of defaulting on debts and/or going into bankruptcy. They of course, also need to be able to meet payroll, so a significant amount of cash on hand and access to capital markets provides a runway for the companies to continue operations.

After all, since these companies move in correlation to the price of Bitcoin, there isn't much to differentiate them from one another. Why invest in a company that is in danger of running out of operating capital when you can choose another company whose share price moves in a similar way without balance sheet weakness?

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One other thing to take into consideration is the daily trading volume these companies have. This is important because it determines how liquid the trade is, meaning, how hard is it to get in and get out of the trade if you choose to. This becomes an issue if you're trading a lot of shares, which with these companies can even be as low as a couple of hundred.

This isn't a problem is selling into strength, as it's usually easy to get in and out of a trade when the share price is moving up. At the same time, there are times when the price movement of a Bitcoin miner is favorable or even falling, yet at the time of trading there aren't that many traders watching it.

Under those circumstances, the strategy should be to trade a smaller number of shares until you reach your selling goal. This would be harder to do if you're using a broker that charges for these trades. I don't.

Some of the Bitcoin Miners I Trade

My general strategy is to follow several Bitcoin miners at a time, that trade at different share price levels. The reason why is there are times when some of them are trading at a brisker pace throughout the day, and if I find a favorable entry point, I don't want to miss the opportunity to take a position in it.

There are also times in a trading day when, even when traders are responding to the price movement of Bitcoin, the share prices of these companies temporarily decouple from one another. That is because of the fact some traders decide to take profits, or there could be some bag holders that sell off when the share price goes higher, limiting the upside of the share price of the miner in the short term.

On the stocks shown in the graph, I've recently written some in-depth articles on them you might want to take a look at. They include Marathon Digital (MARA), Hut 8 Mining (HUT), Bitfarms (BITF), and Hive (HIVE).

Last, I wrote an important article concerning why the price of Bitcoin is temporarily moving in correlation with high-growth tech stocks. If you invest in Bitcoin or altcoins, you definitely need to look at why this is happening now, and also, why it's not going to last.

Conclusion

As I've proven beyond a doubt in this article, the share price of Bitcoin miners move in conjunction with the price of Bitcoin. There's nothing else to watch except that and the response of the Bitcoin mining companies to the price movement at that time.

When the price of Bitcoin plunges quickly and deeply, those can be great times to engage in a day trade, getting in and out of the trade quickly.

But with Bitcoin miners, they are usually best traded as a swing trade (holding for more than one day but not for the long haul.

The exception to the rule for potentially holding Bitcoin mining stocks for the long term is when the share price plunges and you get in at a very favorable entry point. Under those circumstances, you could generate a nice return if you hodl the stock, in the same way you would Bitcoin.

At the same time, I think once a mining stock moves up significantly above an entry point, it's best to take some profits off the table. With the volatility of the price of Bitcoin, there will be plenty of chances to re-enter the trade.

Bottom line is Bitcoin miners can be terrific investment vehicles because they can leverage the price of Bitcoin beyond the percentage Bitcoin itself moves at; when they run, they can really run big.

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