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The new index product, which appears on Luxor’s “Hashrate Index,” features 50 publicly traded companies with a stake in the mining game. Miners themselves are heavily represented, but some tech-related companies such as SBI Holdings and Galaxy Digital are also in the mix.

Co-founder and Chief Operating Officer Ethan Vera told CoinDesk the “Crypto Miner Stock Index” comes as more mining companies go public. Publicly traded mining companies now power over 15% of the bitcoin (BTC, +3.2%) network’s hashrate, he said.

He said the index “provides miners, investors and the public a gauge on how investors are looking at the space and the sentiment in mining.” The index will be updated quarterly.

The investment world has been chasing mining exposure in recent months amid a wider shakeup in the sector. Last week, Viridi Funds unveiled an exchange-traded fund for bitcoin mining firms going green. That vehicle is to be 80% in green miners and 20% in  semiconductor companies. 

Public pensions are also getting in on bitcoin mining stocks as an arm’s-length investment in the crypto economy.

For its part, Luxor’s index will be a mix of pure-play mining firms and the companies supporting them. Ten percent of the initial index is earmarked for chip manufacturers, 5% for foundries and the remaining 85% for the miners themselves. 

Diversified crypto companies with a stake in the mining business get 50% less weighted power, according to a press release.

“Bitcoin mining valuations are a high beta play on bitcoin,” Vera said. “If the underlying commodity moves a few percent, the valuations move some multiple of that. These valuations give investors torque on the underlying commodity.”

Also read: Crypto Long & Short: Why Ethereum’s ‘London’ Upgrade Matters

A rapid expansion of mining facilities in North America and the return of Chinese miners through overseas hosting sites are two major factors that will drive up mining difficulty, according to industry pros.  

Mining difficulty is a metric to describe how hard it is to mine a block and get rewards in bitcoin (BTC, +3.2%). An increase in mining difficulty requires a miner to use more computing power to earn bitcoin, which reduces the miner’s profit margin. The more mining machines are online, the higher the mining difficulty and the more secure the Bitcoin network.. 

Mining difficulty has seen a continuous decrease since the Chinese central government called for local authorities to shut off bitcoin mining operations across the country on May 21. The latest bi-weekly difficulty level posted on July 17 is the fourth downward adjustment since the crackdown. 

“For the first time since China’s hashrate went lights out, we’re anticipating next week’s adjustment to be positive, a roughly 1.75% increase,”  according to Seattle-based mining Luxor’s newsletter on Saturday. 

Even before China’s crackdown, big North American mining companies such as Marathon and Riot were already expanding their operations due to bitcoin’s historic bull run in early 2021, Luxor CEO Nick Hansen said. 

“While we saw the big hashrate drop across the network during that time, other miners were also deploying new hardware,” Hansen said. “It was just drowned out by the disconnections in China.” 

Marathon said it entered a binding letter of intent with the U.S.-based miner hosting services provider Compute North in May to run about 73,000 bitcoin miners as part of the hosting firm’s 300-megawatts (gw) data center in Texas. The Las Vegas-based company claimed its hashrate would reach 10.37 EH/s after all its mining machines are fully deployed. 

“I am personally expecting a positive difficulty adjustment next month because the displaced miners (from China) have since found new homes and they aren’t coming offline anytime soon,” said Azam Roslan, senior sales associate at Wattum, a New York-based mining company that offers hosting and mining machine brokerage services. 

Most of the growth that will drive up mining difficulty in the coming months would still be from the North American miners who planned expansion ahead of Beijing’s crackdown last year or in early 2021, Daniel Frumkin, researcher at Prague-based mining company Slush Pool, said. 

“The Chinese miners that were forced offline in the crackdown and did not find capacity available right away are more likely to take more than three months to get back online because, in most cases, they have to collaborate on building out more infrastructure,” Frumkin said.  

The positive adjustment could be the beginning of a drastic surge in hashrate in the coming year.

“I think we have reached that minimum low difficulty point and now we are going to start to grow unless there are other big government shakeups or changing bitcoin price,” Hansen said. 

So while Beijing’s crackdown on crypto mining might be a disaster for Chinese miners, it could be a windfall for the miners in the rest of the world. 

Mining companies in North America and central Asia have raked in wide profit margins due to the low mining difficulty. However, the window of opportunity is slowly closing on miners as mining companies across the world are scrambling to build out new hosting sites to run mining machines.

“We are a long, long way away from where we were before the crackdown, but my guess is that adjustments will be positive for a long time,” Frumkin said.  

Hasen expects that in about 12 months hashrate would return to the level before China’s crackdown, based on the average lead time to build out new mining facilities to host both new machines and those that come from the Chinese miners. 

“I do not think the positive adjustment is just a blip and we will see significant growth and probably exceed the all-time high before the crackdown given how much new capacities are being built,” Hansen said. 

Technical data suggests lower support around $34,000 could stabilize the current pullback. 

“Going forward, we expect bitcoin to keep pushing higher and test the upper end of the $30,000-$42,000 trading range,” wrote Pankaj Balani, CEO of Delta Exchange, in an email to CoinDesk. “We expect to see similar moves in altcoins, too, led by ether.”

Cryptocurrencies:

Traditional markets:

“Only a conclusive break above $50,000 in BTC would attract fresh flows and signal a change in the broader direction for the market,” Balani wrote.

Some analysts expect further upside in bitcoin as institutional buyers find value opportunities across cryptocurrencies. 

“As institutional investors have been waiting on the sideline to take positions, the current market move could be sustained during the week” wrote Elie Le Rest, partner at crypto hedge fund Exo Alpha, in an email to CoinDesk.

The short-squeeze rally triggered the most active trading session this quarter in crypto markets, according to data from Skew.

The increase in volumes has been driven by large buyers, typically institutions that have waited for a more directional trend on bitcoin since the end of May, according to Le Rest.

Over 2 million BTC have returned to profitability based on their realized price after bitcoin rallied over the past few days, according to data from Glassnode. 

“This indicates that 11.2% of the circulating supply has an on-chain cost basis between $29K and $38K,” Glassnode tweeted Monday.

Bitcoin’s drawdown, or the percentage decline from the peak near $63,000, narrowed to around 40% over the past week. Typically, drawdowns exceeding 50% indicate the start of a bearish trend, similar to 2014 and 2017-2018. 

The current drawdown suggests bitcoin’s intermediate-term downtrend is stabilizing given the sharp price bounce over the past few days. However, drawdowns can last much longer towards 70%-80%, which previously occurred near bear market troughs.

Bitcoin’s one-month put-call skew, which measures the cost of puts, or bearish bets, relative to calls, or bullish bets, has come off sharply to 2% from 13% late last week, according to data provided by crypto derivatives analytics firm Skew. The one-week put-call skew has declined from 13% to 5%.

The narrowing of the spread between prices for puts and calls essentially means investors are no longer seeking downside hedges in anticipation of an extended price drop, wrote CoinDesk’s Omkar Godbole.

“After Monday’s short squeeze, some unregulated futures are back in a 10% contango, but the basis varies across the various venues, and the institutional traders still seem cautious,” according to a Tuesday report by Arcane Research.

Contango, a term used to describe the bullish arbitrage, occurs when the bitcoin futures price is higher than the spot price. Since April, bitcoin’s contango has narrowed as bullish sentiment waned.

“We’re still far away from the extreme contango of 50% from mid-April, but it is concerning that the traders in the unregulated offshore futures once again outpace the CME traders,” Arcane wrote.

“The growing contango occurs as traders with a short bias are reluctant to re-enter short positions after Monday’s massive short squeeze.”

With largest stablecoin, USDT, in the news again for inauspicious reasons, worried perma-bears might now be searching for the crypto market equivalent of a credit default swap – a derivatives instrument that allows buyers to bet on another trading counterparty’s creditworthiness. 

The answer to that might be a put option on tether, essentially a bet that the stablecoin’s price will fall below its ostensible redemption value of $1. Some traders have been actively scouting around for such a trade, according to some players in digital-asset markets. 

Although market makers have seen demand for a tether put, fulfilling that demand is difficult, wrote CoinDesk’s Omkar Godbole. Currently, there is no active market for put options on tether. Exchanges don’t find a business case there because, technically, there is no exposure to offset. Participants fearing a tether collapse need to find a put seller in over-the-counter (OTC) markets or approach market makers. That’s a costly affair. 

The solution may be dealing in a tether put at a much lower or out-of-the-money strike below $1.00. That would cost relatively less than buying a put at $1.00. 

Most digital assets on CoinDesk 20 ended lower on Tuesday. In fact, everything was in the red except for dollar-linked stablecoins.

Notable losers of 21:00 UTC (4:00 p.m. ET):

aave (AAVE) -11.31%

tezos (XTZ) -9.1%

uniswap (UNI) -8.03%

Bitcoin’s one-month put-call skew, which measures the cost of puts, or bearish bets, relative to calls, or bullish bets, has come off sharply to 2% from 13% late last week, according to data provided by crypto derivatives analytics firm Skew. The one-week put-call skew has declined from 13% to 5%.

The narrowing of the spread between prices for puts and calls essentially means investors are no longer seeking downside hedges in anticipation of an extended price drop.

Ether’s one-week and one-month skews have seen similar drawdowns to 0% and 1%, respectively.

The short-term skews have pulled back due to a flurry of call buying. On Friday, a trader bought a total of 2,000 call option contracts on bitcoin in multiple clips of 100 via over-the-counter (OTC) desk Paradigm. The buying was concentrated in July 30 expiry calls at strike prices of $33,000, $34,000 and $35,000. The trader also snapped up Aug. 6 expiry calls at strikes $34,000, $35,000, and $36,000.

Similarly, ether call options saw increased demand over the weekend, as tweeted by Swiss-based data tracking platform Laevitas and Paradigm.

A call option gives the purchaser the right but not the obligation to buy the underlying asset at a predetermined price on or before a specific date. A call buyer is implicitly bullish on the market. A put option gives the right to sell.

While short-dated bitcoin and ether put-call skews have nearly turned neutral from bearish, the longer duration skews remain entrenched in the negative territory, signaling a bullish bias.

At press time, bitcoin is changing hands near $38,500, and ether is trading near $2,300, according to CoinDesk 20 data.

Also read: The Tether Put: Crypto Equivalent of Credit Default Swap?

UPDATE (July 21, 15:03 UTC): Updated with details about Stronghold’s business in the fourth bullet point.

UPDATE (July 21, 15:03 UTC): Updated with details about Stronghold’s business in the fourth bullet point.

UPDATE (July 21, 15:03 UTC): Updated with details about Stronghold’s business in the fourth bullet point.

UPDATE (July 21, 15:03 UTC): Updated with details about Stronghold’s business in the fourth bullet point.

Some analysts expect further upside and view the recent bounce as a trend reversal.

“We turned bullish last Wednesday but weren’t expecting the short squeeze to happen quite so soon,” wrote QCP Capital in a Telegram chat. “We’ve been pleasantly surprised by how supported the market was after Wednesday and sentiment flipped decisively bullish into the weekend.” 

Cryptocurrencies:

Traditional markets:

“This move higher feels more like a bounce back into a neutral state after being overstretched to the downside below $30K,” QCP wrote. “The real pain could be lurking from short gamma positions above the $40K level.”

“Bitcoin momentum is back, and incremental endorsements on Wall Street could easily be the catalyst to help prices rally towards the $45,000 level,” wrote Edward Moya, strategist at Oanda, in an email to CoinDesk.

Blockchain metrics are also showing positive signs for bitcoin. 

“Bitcoin has slowly trickled back into the hands of longer-term holders throughout these months after the dramatic sell-off from all-time highs in May,” wrote Sean Rooney, head of research at crypto asset manager Valkyrie Investments, in an email to CoinDesk. 

“Historically this trend of entities that hold long term does not reverse quickly, which will likely result in further advance in price as we move towards Q4,” Rooney wrote.

The strong bounce in bitcoin over the weekend occurred as shorts covered positions. Roughly 2,000 short positions were liquidated over a two-hour period, according to data from CryptoQuant. 

The short-squeeze rally occurred despite regulatory pressure surrounding stablecoins.

“The short order liquidation amount in the past hour reached $640 million, which is the largest single-day liquidation volume in more than two months,” wrote WuBlockchain in a tweet on Monday.

A strike price of $40,000 represents the largest source of open interest for the upcoming bitcoin options expiry this Friday, which could be a source of volatility. 

“BTC has been rangebound between $28K-$43K and most expect an upside squeeze to occur on a break above $40K,” wrote Coinbase in a newsletter to institutional clients on Saturday.

“But with overwriting strategies forced to settle on lower strikes ($35K-$38K), a sharp short-covering rally will likely begin from lower levels,” Coinbase wrote.

They missed out.

Investors pulled money out of digital-asset funds as bitcoin dipped below $30,000 last week, according to a report Monday by CoinShares. Outflows coincided with negative sentiment that preceded a near-24% price jump in bitcoin over the past seven days.

Monday’s crypto price rally – bitcoin jumped above $38,000 – could encourage digital-asset inflows because many investors have been on the sidelines since the sell-off in May.

Most digital assets on CoinDesk 20 ended up higher on Monday. 

Notable winners as of 21:00 UTC (4:00 p.m. ET):

chainlink (LINK) +19.1%

aave (AAVE) +16.2%

bitcoin cash (BCH) +15.4%

Notable loser: 

algorand (ALGO) -0.74%