Why are Bitcoin mining stocks falling despite rising prices?

While Bitcoin has just returned to its all-time highs, briefly surpassing $64,000, Bitcoin mining stocks have been in spectacular decline over the past few days. Indeed, the value of shares in leading companies in the sector such as Marathon Digital Holdings and Riot Platforms have collapsed, losing over 30%.

An unexpected drop in BTC mining company shares

The price of Bitcoin surpassed $60K this week, climbing to its highest level since November 2021. Yet, at the same time, mining shares of leading companies such as Marathon Digital Holdings and Riot Platforms have collapsed, falling by 18.5% and 21.9% respectively over the last three trading days. Other players such as CleanSpark and TeraWulf also suffered from this brutal turnaround, dropping as much as 27.5% and 25.4% respectively.

Bitcoin mining stocks,
Marathon Digital Holdings Stock (NASDAQ-MARA), daily chart of share price at closing on March 1, 2024

Marathon Digital Holdings Stock (NASDAQ-MARA), daily chart of share price at closing on March 1, 2024
Bitcoin mining stocks,
Riot Platforms Stock (NASDAQ-RIOT), daily chart of share price at closing on March 1, 2024

Riot Platforms Stock (NASDAQ-RIOT), daily chart of closing price at March 1, 2024

This spectacular divergence can be explained by several factors. Firstly, the halving of Bitcoin miners’ income, scheduled for April 2024, is a cause for concern. This event will halve miners’ rewards, taking them from 6.25 to 3.125 BTC of reward per block mined.

While some fear an impact on profitability, others like Mitchell Askew, analyst at Blockware Solutions believe that the most competitive miners will come out on top. However, experts such as Jaran Mellerud from Hashlabs Mining predict the closure of many small-scale miners, particularly offshore.

On the other hand, the meteoric rise in the price of MicroStrategy contrasts this picture. As the last few days have shown, MSTR shares have exploded by over 50% in one week on the NASDAQ, closing at USD 1,079 on March 1. So far, the attraction for investors lies more in the safe-haven value that BTC represents than in the means of obtaining it. Will this change over the coming months?

Bitcoin mining stocks facing a temporary downturn that offers opportunities?

Despite these challenges and the apprehension associated with Halving, Mitchell Askew considers this downturn to be temporary. In his view, it could even open up opportunities for investors, who can acquire mining shares at low prices by taking advantage of the sector’s volatility.

In the long term, demand for Bitcoin should continue its exponential growth, dragging the mining industry in its wake. Especially if its adoption as a means of payment accelerates. The exceptional uptake of recent Bitcoin ETFs approved by the SEC since January 2024 bears witness to this.

Miners are facing powerful winds. In addition to the halving of their margins, the growing competition from Bitcoin ETFs, which are capturing most of the new capital, poses a threat to the attractiveness of the business in the short term. Furthermore, it has been demonstrated that Bitcoin ETFs now demand more bitcoins than miners produce. They say you have to sell shovels during the gold rush, so what will the next few months reveal for bitcoin miners companies?