The end of 2020 has been lighting up crypto-centric subreddits and feeds of Bitcoin hodlers as the appetite for the digital bullion reaches an all-time high.
The explosion has been accelerated via the adoption of the network by PayPal, along with the long-sought out stamp of approval from respected figures like Michael Saylor, Jack Dorsey, and Paul Tudor Jones.
The corresponding price appreciation and mainstream awareness from the likes of Maisie Williams and the most recent institutional buy-in from MassMutual continue to buoy the price and sentiment surrounding Bitcoin (BTC).
The tide continues to rise as the work-from-home dynamic drives digital transformation and it increasingly appears that 2021 will be an action-packed year for the next chapter in the evolution of the Bitcoin network.
Let’s take a look at some of the key areas to keep an eye on in 2021.
Bitcoin miner valuation and the comparison to gold
Bitcoin mining has many fundamental similarities to gold mining; however, there are key differences to explore in the complex task of valuing Bitcoin miners’ operations. We will focus on Riot Blockchain as an example, which is a U.S. Bitcoin miner headquartered in Colorado.
Riot began mining in 2017 and has recently released plans for increasing their hash rate with a delivery of mining hardware expected this spring of 2021. Currently, Riot has a hash rate of 1.5 exahashes per second, which accounts for approximately 1.11% of the Bitcoin network’s total current hash rate of 135 EH/s.
The company mined 224 BTC, according to their Q3 earnings released on Nov. 9, which is in the ballpark of $4.1 million in revenue at $18,500 per BTC.
Considering the figures above, investors will wonder: How can a company justify a market cap of $670 million with just $8 million in revenue and massive operating (electricity) costs?
Even with over 1,000 BTC listed on its balance sheet, which is $18.5 million at the current BTC price, the valuation is very stretched, to say the least.
Here’s where two considerations come into play that could justify a much larger Riot market cap along with other crypto miners, assuming the network moves further into a bull market.
The expectation for future price appreciation
One does not have to dig deep before finding a wide range of optimistic targets for Bitcoin’s price one year from now. The range extends from Mike Novogratz’s $65,000 estimate to PlanB’s $288,000 based on the popular stock-to-flow model.
Meanwhile, CitiBank has recently called for $318,000; the Winklevoss twins have suggested $500,000, and Ark Investment CEO Catherine Wood appears to agree with the latter.
These price targets are the reason why miners have stuck around through the bear cycle of 2018 and operated at a loss at times. They expect the network to be around for the foreseeable future. Miners also know that there is power in serving as the validators of network transactions, and the continued rise in the network hash rate shows that…