With the newfound enthusiasm we have seen in the market in the past four weeks led by a rally in ether, the native token of the Ethereum blockchain, it looks like the bullish effect has trickled down to Bitcoin mining stocks.
Crypto mining companies have seen their stock prices increase as much as 120% over the last month, amid rebounding crypto asset prices, higher mining profitability, and sharp increases in Bitcoin production.
For example, crypto mining companies, Marathon Digital Holdings, Core Scientific, Hut 8 and Riot Blockchain, have posted gains of 124.12%, 110.39%, 98.95%, and 96.69%, respectively over the last 30-days, according to data from Yahoo Finance, significantly outperforming Bitcoin (BTC) (18.0%) and Ether (ETH) (67.8%) asset prices.
What you should know
- It looks like crypto mining stocks are rallying from oversold regions, indicating that the price action we are experiencing today is a rebound from these regions. Despite the new bullish price action, these stocks are still down in terms of Year-to-Date (YtD) performance, with the least posting a negative YtD return of 48%.
- In a Q2 results filing on Aug. 11, Core Scientific reported a staggering 1601% increase in self-mined Bitcoin year-to-date, reaching 6,567 Bitcoin. Q2 revenue rose 118% year-on-year to $164 million, driven by increases in digital mining revenue and hosting revenue.
- Hut 8 also saw its mined Bitcoin increase in the quarter, up 71% compared to the prior-year period to a total of 946 mined Bitcoin due to what the company described as “an increase in hash rate from additional highly efficient miners” and ramping of activities at its Ontario mining site. Its revenue also increased in Q2, rising 30.7% year-on-year to $43.8 million.
- Marathon Digital, which shared its Q2 results earlier this week, also said it had increased its Bitcoin production year-on-year, producing 707 Bitcoin in the quarter despite a “challenging macro environment,” with an 8% increase in Bitcoin production activity.
- Although these three companies posted increased revenue, however, they still ended up posting widened losses, driven by impairment losses on their crypto holdings.
- The increased revenue can be traced back to the fact that Bitcoin miners are no longer holding on to their mined Bitcoin and are selling it immediately on the open market.
- A report by Arcane Research explained that due to the falling prices of cryptocurrency assets, it forced Bitcoin miners, who are people with the computing power that can solve the computational problem required to validate a block of Bitcoin transactions, to begin selling their position. The report estimated that public BTC miners sold 4,456 BTC in May and it took a massive leap in June as they sold 14,600 BTC in June.
- According to the chart in the report, the amount sold by the public miners, reveals that they sold more than 100% of what they produced in May and nearly 400% in June, a massive increase from the usual 25-40%, which has been the threshold in the first four months of the year. This massive leap shows that the deteriorating profitability of mining, caused by the price drops seen, has forced the public miners to start liquidating their bitcoin holdings.
- Bitcoin miners are the only natural net sellers of bitcoin. They receive 900 BTC daily and seek to “hodl” as much as possible. Ironically, their “hodl” ambitions make them sell their precious bitcoins during bear markets since that is when the market forces them to sell.
- In the first four months of 2022, public mining companies sold 30% of their bitcoin production on an average. The plummeting profitability of mining caused by the fall in the price of Bitcoin, forced these miners to increase their selling rate to almost 400% of their output in June.
- The stock price surge has also coincided with climbing crypto prices since the June and July slump, with key crypto assets including that Bitcoin (BTC) and Ethereum (ETH) gaining 18.0% and 67.8% respectively.
- Bitcoin mining profitability has also rebounded from year-lows on June 19, according to Bitinfocharts. During that time, mining profitability registered a rating below 0.08. Today, it currently stands above 0.1.
Bitcoin mining companies have had to deal with a number of factors in recent months that have impacted BTC production and profitability, including lower asset prices and higher energy costs, which have been partially attributed to the heat wave in Texas and the Russia-Ukraine conflict. Considering these factors, it is however unlike for these stocks to maintain their rally.