Bitcoin mining stocks have had a rough start to the year, with most falling by double digits. Marathon Digital (MARA), Riot Platforms (RIOT), Bitfarms (BITF), CleanSpark (CLSK) and Cipher Mining (CIFR) stocks fell between 20% and 33%.
Bitcoin miners lag the price of BTC
Bitcoin mining stocks have underperformed BTC prices this year. While companies have retreated by double digits, Bitcoin has fallen about 14% from its high point this year. Recently, however, Bitcoin has rebounded nearly 10% from last week’s low point.
These companies underperformed due to a situation known as buying the rumors, selling the news. This is a situation where investors buy an asset before a major news event and then sell it after it occurs. In this case, they experienced a triple-digit rally ahead of the SEC’s approval of a spot Bitcoin ETF.
However, there are signs that the recent Bitcoin sell-off will end soon. First, analysts note that outflows from the Grayscale Bitcoin Trust (GBTC) have slowed in recent days.
Most investors holding GBTC, including Cathie Wood, have abandoned their assets due to the substantial 1.50% expense ratio. By comparison, ETFs from companies like Fidelity. Ark Invest and Invesco have a much lower expense ratio.
Catalysts for BTC Mining Stocks in 2024
Bitcoin mining stocks tend to follow the price of Bitcoin. For example, most of them are up more than 300% in 2023, while Bitcoin is up more than 150%. This happens because higher BTC prices lead to higher margins and profits for these companies.
Additionally, Bitcoin mining companies hold large BTC on their balance sheets. As a result, higher prices tend to increase their intrinsic value. For example, Marathon Digital now holds approximately 15,000 Bitcoins worth over $630 million. Riot Platforms holds over 7,350 coins worth over $309 million.
Looking ahead, there are three main catalysts for BTC mining stocks this year. First, there’s the Federal Reserve, which has hinted that it will continue to cut interest rates through the end of the year. Expectations are that the Fed will make three cuts. In most cases, these cuts tend to boost Bitcoin and other risky assets like mining stocks.
Secondly, there is the growing demand for Bitcoin from institutional investors following the ETF’s approval. While demand has been disappointing, it is likely to increase gradually this year.
Third, Bitcoin mining stocks will likely be impacted by the upcoming halving event scheduled for April. The halving reduces the number of Bitcoin rewards transferred to mining companies.
Therefore, the implication is that these companies will see lower revenue growth and profitability when this happens. However, history shows that mining companies tend to see higher revenues after the halving. For example, Marathon Digital grew its revenue from $1.6 million in 2018 to over $259 million in the trailing twelve months (TTM).
Similarly, Riot Platforms revenue grew from $7.8 million in 2018 to $262 million in TTM. This happens because Bitcoin tends to rise after the halving and these companies constantly invest more resources in new hardware.
Therefore, the rebound in Bitcoin prices is likely to push mining stocks higher in 2024.
There are risks to this thesis. For example, it is not mandatory for Bitcoin to rise after the halving. In some cases, Bitcoin tends to collapse immediately after the halving, when investors sell off the news. Additionally, these companies tend to have substantial depreciation costs as mining technology advances.
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