What is Ethereum (ETH) really worth? This is the core question facing BitMine (BMNR) shareholders today. The answer to this question largely determines how investors view the investment value of BitMine stock. The fact that BitMine holds nearly 5% of all circulating Ethereum is in itself a signal to sell the stock and avoid this cryptocurrency.
When investors purchase company stock, they are buying a portion of an operating business, which serves as the foundational support for the stock’s valuation. Even in the worst-case scenario of bankruptcy, there remain physical assets that can be sold to repay creditors, and if anything is left over, some value can be returned to shareholders. But cryptocurrency is not like that.
The sole factor supporting Ethereum’s value is market confidence. Once that confidence disappears, Ethereum’s value will fall to zero, and there will be no remaining assets to sell, leaving long-term holders with nothing. This is not a criticism directed specifically at Ethereum; it is a characteristic shared by all cryptocurrencies. Only the most aggressive investors should even consider purchasing cryptocurrency.
Similarly, only the most aggressive investors should consider buying BitMine stock. The company’s goal is to build a large Ethereum position so that investors can gain indirect exposure to Ethereum by purchasing BitMine shares. Therefore, the primary asset underpinning BitMine’s business is Ethereum itself, and Ethereum in turn relies solely on the belief in its value held by its owners.
To date, BitMine has purchased nearly 5% of all existing Ethereum. The company generates income by “staking” these holdings. However, the cryptocurrency’s price has fallen sharply this year, and its overall performance over the past five years has been lackluster, despite significant volatility. BitMine’s stock price has also moved lower in tandem with Ethereum, which comes as no surprise. Unless investors hold strong conviction in the future prospects of this cryptocurrency, they should avoid investing in BitMine.
In essence, BitMine is making a massive high-risk bet on Ethereum, and investors who buy its stock are doing the same. The scarcity created by the company’s holdings may help support Ethereum’s price, and some even argue that this could trigger a cryptocurrency rally. Wall Street history is filled with examples of successful high-risk bets that delivered substantial returns to investors.
But Wall Street is equally filled with cases of aggressive investments that failed, leaving investors with nothing. If Ethereum continues to underperform or falls to zero, BitMine’s business model will face serious problems. Although the company is indeed executing its stated strategy, this is precisely the reason why most investors, especially conservative ones, should stay away from this stock and the increasingly dominant cryptocurrency market it represents.
