Bitcoin mining companies have experienced significant gains, outperforming the price of Bitcoin itself during the recent bullish price action. In fact, the average year-to-date gains for the top nine public Bitcoin mining firms by market capitalization reached an impressive 257.14%, nearly three times higher than the gain observed in Bitcoin during the same period.
This notable increase in mining stocks can be attributed to the leveraged beta effect that mining stocks enjoy. Leveraged beta suggests that during periods of Bitcoin’s upside, these stocks tend to outperform. Conversely, when Bitcoin experiences a slump, these stocks face deeper downside risks. Therefore, it is crucial to monitor Bitcoin’s price performance, as it will continue to have a significant impact on the direction of mining stocks.
While mining companies are positioning themselves for the long term by purchasing more mining machines, they have yet to exhibit accumulation levels that match previous bull markets. This suggests that the upward trend in mining stocks may face a stall in the medium term.
Nonetheless, multiple mining companies have made expansion moves in the past month, which has contributed to the positive sentiments and long-term value of the stocks. Additionally, mining conditions have improved due to a dip in hashrate and an increase in Bitcoin’s price.
However, on-chain data indicates that miners have unloaded a significant portion of their holdings. This could potentially signal a downturn in the near future. It is important to note that although some mining companies have made bold moves, such as Hut 8 Mining Corp.’s (HUT8) merger with US Bitcoin Corp (USBTC) and Riot Blockchain’s (RIOT) deal with mining hardware manufacturer MicroBT, other indicators suggest potential risks.
For instance, Marathon Digital Holdings is heavily shorted on Nasdaq, with 25.06% of its float shares shorted. Similarly, Riot Platform and Cipher Mining also have a significant portion of their floating shares shorted. These elevated short interest levels may be due to excessive debt and stock dilution, negatively impacting the profitability of existing shareholders.
Although mining profits have improved, miners have been selling their Bitcoins, which could indicate potential future negative price action. While revenue improved in June, miners have continued to spend on expansion and operation costs, suggesting that a full-fledged crypto bull market has yet to materialize. Therefore, it is possible that mining stocks may experience medium-term sideways price action or even a correction if the price of Bitcoin drops.
Overall, while the recent bullish price action in Bitcoin has led to substantial gains for mining companies, it is essential to consider various factors such as Bitcoin’s performance, on-chain data, and expansion plans of mining companies to assess the future direction of mining stocks. Investing and trading in cryptocurrencies involve risks, and readers should conduct their own research before making any investment decisions.