What happened

Many stocks with tight connections to the cryptocurrency market fell hard in April 2021. North American Bitcoin (BTC -0.71%) miners Riot Blockchain (RIOT 2.27%) and Marathon Digital Holdings (MARA 4.25%) ended the month 21.5% and 23.4% lower, respectively, according to data from S&P Global Market Intelligence. China-based Bitcoin mining hardware maker Canaan (CAN 3.82%) posted a 39.5% plunge. You might think that the underlying Bitcoin asset would be falling just as hard, but the leading cryptocurrency's prices drifted just 1.5% lower in April.

So what

First and foremost, the mining stocks tend to amplify whatever is going on with Bitcoin's prices. The three tickers mentioned above are still beating both the stock market and Bitcoin over the past six months, led by a whopping 1,220% return on Marathon's shares:

MARA Chart

MARA data by YCharts

It was largely business as usual, apart from the changing Bitcoin pricing trend. Canaan announced a new line of facial recognition chips and signed a few more hardware installation deals. Marathon picked a new CEO and installed 13,000 more mining machines. Riot ordered 42,000 miners and acquired a Bitcoin-miner hosting facility owner in a $650 million deal.

A businessman holds a needle next to a golden balloon with a Bitcoin design.

Image source: Getty Images.

Now what

The companies are not simple Bitcoin funds. All of them run active operations, either mining more Bitcoin tokens day by day or selling the hyperspecialized machines you find on those mining farms. When Bitcoin prices are rising sharply, as they did from October 2020 to March 2021, the miners generate fantastic returns on their hardware investments. And when the cryptocurrency market calms down a bit, the mining specialists plan ahead for the next boom and continue to install more hardware.

It's a capital-intensive business, and a risky one. Bitcoin crashes like the one you saw in 2017-2018 can strip the mining companies of working capital while the fixed costs of running the power-hungry mining farms are racking up. It's no surprise to see market makers driving stocks like Canaan, Riot, and Marathon lower when the skyrocketing Bitcoin chart flattens out.

It's a sobering reminder of the industry's very real operating risks. Even Marathon wouldn't recommend betting the farm on its volatile stock. The company's "About Us" page recommends spreading out your Bitcoin exposure across miners, Bitcoin funds, and the cryptocurrency itself.