Growth in Assets and Research

The ETF industry is experiencing record growth. Despite record flows, the total revenue generated from US ETF expense ratio revenue is still only about $12 billion annualized. Obviously, this is great for investors, but shows how hard it is to achieve success in the lower margin asset management world of ETFs. To put this in context, crypto currency mining is likely to generate $20 billion in revenue over the next 12 months. This week, we talk with our ETF Think Tank Strategist, Dan Weiskopf, and share his notes and thoughts on the miners and his recent visits to crypto mining facilities.

Dan’s Thoughts

Due diligence does not stop, especially in an evolution or, dare say revolution, like Crypto! While total revenues of Bitcoin miners fell sharply in June compared to May, they remain higher than in December 2020. The lower price of Bitcoin in December, at between $19,000 to $29,000 versus the $32,000 to -$40,000 range in June, reflect the sectors volatility and, dare say… the opportunity. Note the high price over these past 12 months was about $63,410, and the low price was $9,103. [1] Regardless, as we’ve experienced in the ETF industry, growth may feel linear looking backwards on a long timeline. The fact is, however, that there will be periods of fits and starts. How else is price discovery achieved, new opportunities discovered and disruption forced on the establishment?

According to The Block’s Data dashboard, Bitcoin mining revenues declined from $1.55 billion in May to $839 million. Note that part of the decline came before the change in the 28% difficulty rate and mining operation shifting out of China. What is even more surprising than the fact that Ethereum miners similarly saw a dramatic decline in their revenues, was the fact that this revenue base at this current moment is higher than Bitcoin. In June, Ethereum mining declined to $1.1 billion from $2.35 billion in May. Go figure?

As ETF Nerds, we thought we would point out that even with these lower results, the trailing combined revenues eclipse $20 Billion; far exceeding that of the ETF industry’s $12 Billion 12 month ETF ER KPI. For some further details we suggest people check out The BLOCK article by Yogita Khatri:

[1] According to Bloomberg

Again, due diligence does not stop, and Crypto does not sleep! To that point, Weiskopf just returned from a site visit to RIOT Blockchain’s Whinstone mining facility in Rockdale, Texas. Mining is an essential part of the security of the Bitcoin ecosystem. The size and scope of this facility will make it an important operation to the infrastructure buildout of Bitcoin, so having the opportunity to see it up close and personal was constructive due diligence. Other site visits around the U.S. are expected, and bigger is not always better. We expect mining to remain a fragmented industry led by entrepreneurship.

A couple of key takeaways from the visit:

  • The visit confirmed that, much like the picks and axes thesis we see for the blockchain evolution, the commitment of the people behind the scenes is unparalleled. Most crypto people focus on price. The people in the mining industry focus on operations and scale.
  • The buildout of facilities takes years of planning, capital, and a willingness to address problems head on as a team. Thank you Jason Les, CEO of RIOT, and Chad Everett, CEO of Whinstone, for the video and your team’s time and commitment.
  • The parallel relationship between harnessing energy, raw power and technology with human innovation and entrepreneurship is an important mission. Much like the ETF wrapper democratized investing for the world, the miner is safeguarding the security of the Bitcoin processing system… and this requires capital.

Twenty-five years ago, there were many ETF skeptics in the financial service industry, and today there is $6.55 Trillion wrapped as ETFs. Bitcoin skeptics and the value of the mining industry may remain. However, our bet is that 25 years from now, much will change across multiple industries as a result of the foundation that is being created today.


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