Bitcoin mining stocks continued their upward trend in July 2023, with the top 10 stocks by market cap experiencing an average gain of 23.10% for the month. These stocks have also seen a year-to-date return of 277.34%. However, the price of Bitcoin itself experienced a decline of 3.59% in July, as it struggled to gain support above $30,000 for the sixth consecutive week since June. Despite this difficult month, the BTC price is still up by 78.88% in 2023.
The decline in Bitcoin’s price has had a negative impact on miner profitability. Additionally, the mining difficulty reached a new all-time high, further reducing profitability for miners. However, historical trends indicate that the network’s hash rate is expected to continue to rise leading up to the next halving event on April 26, 2024. This is due to miners increasing their hashing power by installing more efficient machines.
In addition to increasing processing power, miners are adopting other hedging techniques such as selling Bitcoin futures to lock in current prices. This is done to mitigate the potential risks and uncertainties associated with the fluctuating price of Bitcoin. As the network’s hash rate is predicted to increase throughout the year, miner profitability and stock valuations may continue to face pressure.
Although the BTC price has seen a significant increase this year, the mining difficulty has also risen by 51%, offsetting some of the profitability gains. In mid-July, the difficulty reached a new high of 53.91 trillion units. This increase triggered a capitulation event in the mining sector, which was already under pressure at the beginning of the month.
The network’s hash rate experienced a decline in the second half of July, resulting in a 2% decrease in difficulty during the adjustment on July 26. While this adjustment may ease some pressure on miners, the total hash rate is still higher than the lows seen last month.
Miners are continuing to add to their fleet in preparation for the halving event. Before the previous halving, the hash rate consistently grew for a year, peaking just a month before the event. The current rise in the network’s hash rate suggests a similar trend. Furthermore, miners are implementing various strategies to manage their cash flow and profits before the halving.
Some miners have been sending large amounts of BTC to exchanges, potentially as part of a de-risking strategy to hedge their BTC on derivatives exchanges. Others may be selling to improve their cash balances before the halving. This selling trend is evident in data from TheMinerMag, which shows that public miners have liquidated a significant portion of their newly mined Bitcoin in the past two months.
Despite the challenges faced by miners, Bitcoin mining stocks have continued their positive rally since the beginning of the year. Reports of a $500 million investment by Vanguard, a major US-based investment fund, have fueled the stocks further. The potential for further upside is also being driven by an ongoing short squeeze, particularly for heavily shorted stocks such as Marathon Digital Holdings, Riot Platforms, and Cipher Mining.
However, mining stocks did show signs of weakness in the second half of July, with several recording negative weekly closings. As competition in the Bitcoin mining industry is expected to increase throughout the year, miner profitability and stock valuations may remain under stress leading up to the halving event.
It’s important to note that this article is for informational purposes only and should not be considered legal or investment advice. Readers should conduct their own research and analysis before making any investment decisions.