WGMI: The Bitcoin Mining ETF Pares 2024 Gains, Eyeing An Entry Idea

Summary Bitcoin’s historical seasonality shows strong returns from December through February, with a median December gain of 8.6%, supporting optimism for a year-end rally. The CoinShares Valkyrie Bitcoin Miners ETF could benefit from Bitcoin’s potential rally, though it currently faces overbought conditions and high volatility. WGMI’s portfolio is concentrated, with 50% in its top four holdings, and has a high P/E ratio of 37.5, suggesting caution. Despite long-term positive trends, I maintain a hold rating on WGMI due to its stretched valuation and near-term technical warning signs. Bitcoin (BTC-USD) tends to end the year well. In data going back to 2010, the token has typically returned 11.3%, on average, in December. The median gain is 8.6%, according to data from Barchart. Median returns over in January and February are strong too, while March has featured more negative performances than positive. So, with bitcoin having returned more than 100% so far in 2024, there’s optimism that a FOMO trade could transpire over the final weeks of the year. If that thesis were to play out, then there would be obvious tailwinds in shares of the CoinShares Valkyrie Bitcoin Miners ETF ( WGMI ). As it stands, traders place a 74% implied chance of the world’s most valuable cryptocurrency reaching the psychological $100,000 price tag , per Kalshi. I have a hold rating on WGMI. I see the fund as somewhat expensive today, but the broad technical trend is positive. With the ETF working off overbought conditions and retreating off a key resistance point on the chart, patience could be rewarded in the weeks ahead. I will outline where a positive risk/reward long investment could be seen. Bitcoin Seasonality: Strong Returns December Through February Barchart Odds of Bitcoin Hitting $100k Fall From Last Week’s Peak Kalshi According to the issuer, WGMI provides targeted exposure to the companies at the forefront of transaction verification, ensuring transparency and security on the blockchain. WGMI is a regulated, actively managed ETF traded on the Nasdaq. This structure provides a familiar framework for investors looking to enter the cryptocurrency space without direct exposure to bitcoin. WGMI is a small ETF with just $237 million in assets under management as of November 25, 2024. Its annual expense ratio is somewhat high at 0.75% while the forward dividend yield is low at 0.20%. But where WGMI shines is with its share-price momentum . Seeking Alpha’s quantitative scoring system reveals a perfect A+ ETF Grade. Partly as a result, WGMI is currently the No. 1-ranked ETF in its Asset Class, according to the quant ranking tool. Along with the high annual expense figure and low yield, WGMI is a highly risky product . Its historical annualized volatility is extreme at 88%, and tracking error has been very high too. Liquidity can be an issue at times, though volume has increased significantly in recent weeks – the average bid/ask spread is 18 basis points, per ETF Central. Digging into the portfolio, WGMI’s risk profile should warrant caution by prospective investors considering that 95% of the allocation is considered SMID cap in size. More than half of the portfolio is invested in small-cap growth stocks, so I assert that a relatively small position size should be taken from a risk management perspective. WGMI has 70% US exposure with just below 30% foreign access. On valuation, the price-to-earnings ratio is high at 37.5. Long-term EPS growth is strong, however, above 30%. Of course, much depends on how positive price action in bitcoin is. CoinShares points out that WGMI’s correlation to the S&P 500 is just 0.6 while the fund’s correlation to bitcoin is higher at 0.83. WGMI: Portfolio & Factor Profiles Morningstar Adding to WGMI’s risk construct is the reality that the top four positions account for a material chunk of the ETF – about 50%. So, monitoring both the fundamental and technical trends in Core Scientific ( CORZ ), Iris Energy ( IREN ), Cipher Mining ( CIFR ), and CleanSpark ( CLSK ) is important. Overall, concentration is high as 81% of WGMI is invested in the top 10 stocks. WGMI: Holdings & Dividend Information Seeking Alpha Looking closer at the four largest holdings, CleanSpark has an unconfirmed Q4 earnings report on Friday, November 29 AMC. The firm is then slated to present at the Wells Fargo 8 th Annual TMT Summit 2024 on Tuesday, December 3. Keep the rest of next week on your radar as we’ll get monthly production numbers from each of the major stocks in WGMI. Key Events On Tap Wall Street Horizon The Technical Take With a stretched valuation and as bitcoin works down from flirting with $100,000 earlier this month, WGMI’s technical situation is generally positive long-term, but cautionary in the short run, further pushing me to issue a hold rating. Notice in the chart below that an uptrend resistance line is seen in the low $30s – shares backed away from that spot two weeks ago. I like that the RSI momentum oscillator at the top of the graph is in an uptrend, which helps to confirm upside price action, but the RSI is also coming off technical overbought readings. Also take a look at a price gap just above the $21 mark. If we see the ETF penetrate that gap, it would be a favorable risk/reward long area in my view. Right now, the rising 50-day moving average comes into play near $22 while the 200dma is also upward-sloping, suggesting that the bulls control the primary trend. Finally, there’s a high amount of volume by price in the low $20s which should act as solid support. WGMI: Long-Term Uptrend, But Near-Term Warning Signs, Low $20s Support Stockcharts.com The Bottom Line I have a hold rating on WGMI. I see the long-term trend as positive on this crypto mining ETF while seasonal tailwinds are present. But several technical indicators lead me to a hold rating as well as the fund’s high P/E multiple.

Source: Seeking Alpha