Crypto-mining services firm Luxor Technologies is offering what it says is a first-of-its kind product that allows institutional investors like hedge funds to bet on Bitcoin miners’ revenue.
(Bloomberg) — Crypto-mining services firm Luxor Technologies is offering what it says is a first-of-its kind product that allows institutional investors like hedge funds to bet on Bitcoin miners’ revenue.
Unlike Bitcoin mining stocks, which has become a popular way for people to invest in the sector, the derivative offering, dubbed Luxor Hashprice NDF, will provide investors direct exposure to the miners’ revenue without other variables that can influence the company’s stock price such as operational costs, Luxor said Monday.
The company said its “the first of many” derivatives it plans on rolling out this year.
Luxor is the latest company to offer investors a way to gain direct exposure to the Bitcoin mining industry.
Crypto lender Maple and Icebreaker Finance set up a $300 million credit fund that charges miners as much as 20% interest rate last month. Chinese crypto billionaire Jihan Wu launched a $250 million distressed asset fund for miners.
The largest crypto asset manager Grayscale Investments teamed up with crypto-mining services provider Foundry and established a new entity to invest in Bitcoin mining hardware last week. These offerings come, however, as Bitcoin, the world’s largest cryptocurrency based on market value, is down 58% so far this year and a number of digital-asset lenders and exchanges struggle to stay afloat.
Luxor’s non-deliverable forward contract (NDF) trades over-the-counter and enables traders to arbitrage revenue miners make from a hashrate, a measure of how much power is being used to mine Bitcoin over a specific period of time.
Meanwhile, it gives miners a way to hedge their mining operations. Bitcoin miners can get much-needed cash from selling bets on future production or lock in their future production at a fixed price.
There is usually a discount for these forward contracts compared to the current spot price of a certain amount of computing power for Bitcoin mining.
That could be around 5%, based on the feedback from investors and miners, said Matthew Williams, head of derivatives at Luxor. One of the most common durations for such contracts is 30 days, he said.
The derivative could become a major tool for miners as their Bitcoin holdings shrink, Williams said.
Miners tend to use Bitcoin option contracts to manage risks associated with the token’s price when they have large Bitcoin reserves on their balance sheets. However, miners are now being forced to sell their coins to repay debt and cover operational costs as the price of Bitcoin falls.
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