Bitcoin mining stocks

Bitcoin mining stocks have been on a triple-digit-tear in 2023, but an uptick in BTC sent to exchanges hints at waning momentum.

Bitcoin mining companies outperformed BTC price by a huge margin amid the recent bullish price action in the top cryptocurrency.

The average year-to-date gains in 2023 across the stocks of top nine public Bitcoin mining firms by market capitalization stood at 257.14%. The figure is almost three times higher than BTC’s gain in the same period.

The higher gains represent the leveraged beta effect that mining stocks enjoy. Leveraged beta suggests that during Bitcoin upside, these stocks outperform. Whereas, when Bitcoin slumps, they face deeper downside risk.

Due to a high levered beta, Bitcoin’s price performance will remain a crucial factor in determining the direction of mining stocks.

The trends within the mining sector show that miners are positioning themselves for the long-term by buying more machines. However, they have yet to exhibit accumulation levels that match previous bull markets, suggesting that the uptrend in the stocks could stall in the medium term.

Multiple mining companies made expansion moves in the past month which added to the positive sentiments and long-term value of the stocks. At the same time, the mining conditions improved with a dip in hashrate and price increase.

However, on-chain data shows miners unloaded a significant portion of their holdings, which could be a sign of a downturn in the near future.

Mining companies make expansive moves

The public companies in the U.S. made aggressive moves in June, signalling long-term strength in the industry.

Hut 8 Mining Corp. (HUT8) merger with US Bitcoin Corp (USBTC) increased its total hashrate to 9.8 EH/s, making it the third largest public mining entity in the U.S. However, it also took a debt of $50 million from Coinbase.

Cleanspark (CLSK) invested $9.3 million to increase its hashrate by almost 1 EH/s.

At the same time, Riot Blockchain (RIOT) entered into a $170 million deal with mining hardware manufacturer MicroBT to nearly double its hashrate capacity by 2024 upon full deployment.

Mining stocks are prepped for a short squeeze

Marathon Digital Holdings is one of the most shorted stocks on Nasdaq with 25.06% of its float shares shorted, per data from Fintel. For reference, values above 10% are considered heavily shorted.

Similarly, Riot Platform’s 14.54% of float shares are shorted—an increase from 13.48% in May and Cipher Mining at 22.32%.

While the rest have between 5% to 10% of their floating shares shorted, representing a relatively neutral market stance.

The increased short interest in MARA, RIOT and CIFR could be due to excessive debt and stock dilution, which negatively affects the profitability of existing shareholders.

Mining profits improve, but miners are selling

The one-hop supply metric from Coin Metrics, representing the holdings of wallets that received coins from mining pools, shows that these addresses have reduced their holdings near a one-year low.

Glassnode data also recorded a significant volume of miner coins transferred to exchanges. The exchange inflows surpassed even the levels seen during the bull market of 2021.

https://twitter.com/glassnode/status/1673635113261756416

Moreover, the miner holdings are still near a two-year low, which is likely due to low profitability for the most part of 2023.

The network’s total hashrate reached a new all-time high at the start of June, however, it has been dropping amid heatwaves in Texas. The dropping hashrate and increase in Bitcoin’s price above $30,000 is contributing toward increasing the profitability of running miners.

The production cost of the most used mining model Antminer S19 ranges between $20,000 to $25,000 depending on electricity cost.

Notably, companies with mining farms in Texas such as Riot Blockchain can incur some losses due to the climate. However, it is likely that the company would have taken steps to hedge the heatwave risks as it is not the first time.

Related: Riot Blockchain's Bitcoin mining productivity dropped 28% YOY amid record Texas heat

Nevertheless, despite the improvement in profitability, miners are unloading Bitcoins, potentially a sign of future negative price action.

While revenue improved in June, miners have continued to spend on expansion and operation costs, which suggests that a crypto bull market has yet to start.

The expansion plans of companies and decline in on-chain miner holdings project medium-term sideways price action or a potential correction in mining stocks if BTC price drops.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

In March mining stocks increased at a slower pace compared to BTC, amid macroeconomic uncertainty and increasing competition among Bitcoin miners.

Bitcoin mining stocks had a dull performance in March, with small moves here and there that followed BTC's price movement. While it is encouraging to see that most stocks held onto their impressive January gains, Bitcoin's price action will be crucial for the short-to-medium-term performance of these stocks.

Additionally, the expansion of the public Bitcoin mining sector in the U.S. continues as American miners reported one of the biggest ASIC imports in January 2023. The delivery of new machines and an increase in the BTC price led to a surge in the network's hashrate to new all-time highs. Miners' incomes, however, are subdued by the rising network difficulty.

Mining stocks are in wait-and-see mode

Despite Bitcoin’s recent 18% rally, subdued performances of most mining stocks can be attributed to the uncertainty around the sustainability of Bitcoin’s price rally and the increasing competition in the mining industry. The Hashrate Index, a proxy for Bitcoin mining stocks, increased 10% in March from 1,929 to 2,141 points.

The median monthly gain in the top ten mining stocks is 0.30%, with an average of 5.21%. Riot Platforms and Cipher Mining led the monthly gains across the sector with a 28.64% and 24.34% rise. CleanSpark, Inc. and Bitfarms Ltd. were the worst performers, with negative 6.52% and 5.79% moves.

The average Q1 2023 gains across the top ten Bitcoin mining stocks is 128%. These shares yielded the majority of their Q1 2023 gains in January. The following months, February and March, saw a muted performance from most mining company stocks.

The chart of Marathon Digital’s stock perfectly illustrates the price action across the industry, with a tall candle in January, followed by small moves in the next couple of months.

Currently, mining firms are focused on expanding and sustaining their operations rather than profits. Marathon Digital increased its mining capacity by 30% in February. The firm’s aggressive expansion will increase its production capacity from 9.5 EH/s to 23 EH/s by mid-2023.

At the same time, Canadian mining firm Hut 8 Mining Corporations announced a merger with the U.S.-based Bitcoin Corp to combine their resources and weather the downturn across the industry.

The network’s hashrate soared as new ASICs flood the market

The Bitcoin network’s hashrate increased to an all-time high of 348 exahash per second (EH/s) from 320 EH/s in the last week of March.

The revenue of miners jumped around 30% after the recent rise in BTC price, increasing from $65 per petahash per sec (PH/s) per day in Q4 2022 to around $85 per PH/s per day in Q1 2023. However, Bitcoin’s price jumped over 60% during the same period.

The increase in Bitcoin’s price is only part of the reason behind the hashrate surge. The discrepancy in miner incomes can be attributed to the increasing mining difficulty. It was mainly due to the delivery of new machines across America, which increased the network’s processing power and difficulty.

In January 2023, U.S. miners reportedly imported 1,555 tons of machines, which has propelled the network’s hashrate to its current peak.

Related: Crypto mining in 2023 — Is it still worth it? Watch Market Talks

The rise in the network’s hashrate has limited the revenue of miners, which may adversely affect miners' incomes if BTC prices were to fall from here.

There’s a probability that the network’s hashrate could plateau around current levels. The MinerMag report added:

"If there’s no major uptick in the shipment gross weight in the rest of March and into April, the growth rate of bitcoin’s network hashrate may gradually slow down.”

Bitcoin’s price performance will continue to play a significant role in the growth of the mining sector, but BTC price must sustain its current level or move higher for positive revenues and a continued uptrend in public stocks.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.