Cathie Wood Just Loaded Up on This High-Flying Crypto Stock. Should You Follow Her Lead? | The Motley Fool

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.

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?