ETHA Could Face Deeper Losses Than FBTC Over the Next Five Years

Cathie Wood is one of Wall Street’s most closely followed investment managers. Wood founded Ark Investment Management in 2014 with a focus on disruptive innovation, and has endeared herself to investors with her transparent, social-media-friendly approach to portfolio management.

A longtime crypto bull, Wood recently started a position in Bitmine Immersion Technologies (BMNR -4.91%). Ark’s ETFs purchased 4.4 million shares on July 21. Bitmine chugged 2% higher the following day, but that’s a drop in the bucket compared to the stock’s 435% gain since it debuted on the public markets in June. Is now the time to follow Wood and get in on this stock.

All in on Ethereum

Bitmine’s core business is mining Bitcoin. The company claims that its immersion-cooled mining technology is more cost-effective and environmentally friendly than conventional Bitcoin mining systems. Bitmine also offers mining-as-a-service and Bitcoin treasury consulting.

For its fiscal 2024, which ended Aug. 31, 2024, Bitmine reported $3.3 million in revenue, a 413% year-over-year increase. The lion’s share of its revenue came from mining. While the company reported a net loss of $3.29 million, its net cash used in operating activities was a loss of $28,753 — a dramatic improvement over the $809,715 loss in 2023.

On June 5, Bitmine stock began trading on the New York Stock Exchange with little fanfare, closing at $7.75 per share. Shortly after, the company began buying Bitcoin, following in the footsteps of MicroStrategy (doing business as Strategy) and other companies that have added the cryptocurrency to their balance sheets.

Image source: Getty Images.

Here’s where things take an interesting turn. On June 30, Bitmine said it was pivoting to Ethereum as its primary financial reserve. The company announced a $250 million private placement of common stock to bankroll its first Ethereum purchase, and named market strategist and outspoken crypto bull Tom Lee as chairman of the board. The share price skyrocketed 696% in one trading day.

The stock has been on a roller-coaster ride since then, peaking at $161 a share in early July before settling into a tighter trading range. As of the closing bell on July 24, Bitmine stock was trading at around $42 a share. Meanwhile, Ethereum is up nearly 139% over the past three months.

How it’s using Cathie Wood’s money

As of July 17, Bitmine Immersion Technologies held 300,657 Ethereum tokens — 60,000 of which were via in-the-money options — worth more than $1 billion. The company’s publicly stated goal is to acquire and stake 5% of the overall Ethereum supply.

Bitmine has said it pivoted to Ethereum because of its utility as a facilitator of smart contracts, stablecoin payments, and decentralized finance transactions. Stablecoins, in particular, are seeing mainstream adoption by consumers, merchants, and financial services providers, and Lee has called them “the ChatGPT of crypto.”

“Acquiring $1 billion of ETH is a clear signal of our conviction in Ethereum’s long-term value,” Bitmine CEO Jonathan Bates said in a press release.

Bitmine said it plans to use the net proceeds from Wood’s investment to purchase more Ethereum.

Is Bitmine a buy?

Wood isn’t the only high-profile investor to start a position in Bitmine. Earlier this month, tech mogul Peter Thiel disclosed a 9.1% stake in Bitmine through his venture capital funds.

While Bitmine’s core business is Bitcoin mining, stockpiling Ethereum has completely changed its value proposition for investors. You won’t find any pure-play Bitcoin miners in Wood’s flagship Ark Innovation ETF. That’s because Wood considers Bitmine a “digital asset treasury” company.

“These companies could be the next-gen asset managers in the on-chain capital markets age,” Wood asserted in a post on X.

Bitmine reported $1.2 million in revenue for its first quarter of fiscal 2025, which ended on Nov. 30, 2024. That’s a 135% year-over-year increase. The company reported a net loss attributable to common shareholders of $3.9 million, compared to $930,000 in the year-ago quarter. The increase was mainly due to an accounting adjustment related to preferred stock, according to the company.

The price-to-sales (P/S) ratio can be a useful metric when comparing the valuations of companies that aren’t profitable. With a P/S ratio of 16 on a trailing-12-month basis, Bitmine is trading at a premium compared to other crypto miners.

BMNR PS Ratio data by YCharts

While Bitmine’s top line is growing at an impressive clip, it’s clear to me that investors are piling in because of its massive stockpile of Ethereum, not its underlying fundamentals. Ultimately, this is an unprofitable company that’s selling shares of common stock to buy Ethereum.

With $1 billion in Ethereum on its balance sheet, I would expect Bitmine’s fortunes to be closely tied to the price action in Ethereum — more so than Bitmine’s fundamentals. And that raises the question: As an investor, why not just buy Ethereum directly? 

The Bitcoin treasury company model pioneered by Strategy is going fully mainstream. In fact, Wall Street is now adapting this business model for other cryptocurrencies beyond just Bitcoin.

On June 30, Tom Lee of Fundstrat announced that he was becoming the chairman of BitMine Immersion Technologies, a tiny Bitcoin mining company. But here’s the twist: He’s going to transform that Bitcoin-centric company into an Ethereum (ETH 0.56%) treasury company. The company will buy Ethereum, not Bitcoin, for its balance sheet.

Tom Lee is very bullish on Ethereum. He recently told CNBC that he thinks Ethereum has the potential to become “the new Bitcoin.” Is he right?

Ethereum’s historical track record

To answer that question, all you need to know is that Ethereum has a stellar track record, and has often been highlighted as the one cryptocurrency capable of “flipping” Bitcoin. That is, Ethereum is the one cryptocurrency in the world capable of surpassing Bitcoin in market cap.

That’s due in part to the remarkable historical returns of Ethereum. When it launched in July 2015, Ethereum traded for less than $1. Ten years later, it trades for $2,595. That’s a head-spinning return on investment within a relatively short period.

Admittedly, Ethereum has been struggling of late, down 22% for the year. And it doesn’t show signs of turning around anytime soon, even with the support of the Trump administration, which made Ethereum one of the keystone cryptocurrencies for its new U.S. Digital Asset Stockpile.

The convergence of Wall Street and crypto

Tom Lee is not focused on the past, he’s focused on the future. And what he sees happening is a grand convergence of traditional financial services and crypto.

Historically, Ethereum has been the one blockchain that dominates the world of decentralized finance (DeFi), which is the blockchain version of traditional finance.

For example, Ethereum has a staggering 55% market share of total value locked (TVL), a key metric for measuring DeFi activity. No other blockchain even comes close. Solana only has a 7% market share. And Base, the blockchain launched by Coinbase Global, only has a 3% market share.

Image source: Getty Images.

When you look at the investments being made by World Liberty Financial, the crypto venture affiliated with the Trump family, they all seem to involve Ethereum or DeFi. Given that Ethereum is such a DeFi powerhouse, this makes sense.

This is important to point out because just about everyone admits that Bitcoin will never be a DeFi powerhouse. Right now, Bitcoin only has a 5.5% market share of TVL. So Ethereum is approximately 10x bigger than Bitcoin when you take into account only this one factor.

Stablecoins change everything

I’ve saved the best for last: Ethereum is also a giant when it comes to stablecoins. These stablecoins are cryptocurrencies that are pegged 1:1 to the value of another asset, usually the U.S. dollar.

These stablecoins are — you guessed it — extraordinarily important to decentralized finance. They are the easiest way for mainstream Wall Street institutions to gain access to blockchain-based yield strategies.

Moreover, stablecoins are becoming some of the biggest buyers of U.S. T-bills, since this government debt can be used to preserve the dollar peg. As a result, Treasury Secretary Scott Bessent recently predicted that stablecoins will become a $2 trillion industry within a few years.

As Tom Lee points out, roughly 50% of all stablecoin transaction activity is now taking place on the Ethereum blockchain, and roughly 30% of all transaction volume on the Ethereum blockchain is linked to stablecoins. So he sees these stablecoins driving tremendous value for Ethereum in the future.

Caveats for investors

All of this sounds fantastic, right? Investors get a cryptocurrency with a stellar track record. This cryptocurrency is also at the forefront of the fastest-growing sector of the crypto market. And this cryptocurrency has the direct attention of the Trump administration. What could possibly go wrong?

For one thing, Ethereum faces a tremendous amount of competition from other blockchains, many of which are also trying to become “the blockchain” for stablecoins. Tron, a competing blockchain with support from the Trump family, is second only to Ethereum for stablecoin transaction activity.

Also, keep in mind: Vitalik Buterin, the legendary founder of Ethereum, warned earlier this year that he doesn’t want the Ethereum blockchain to become a Wall Street casino. Even though the White House has made every signal that it wants to include Ethereum in its vision of crypto, there’s been little reciprocal show of support from Buterin.

Before you jump right in and assume that Ethereum will become “the new Bitcoin,” make sure you do your due diligence. Right now, Ethereum seems to be the frontrunner for this title, but there are plenty of other competitors out there in the crypto market.