Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Marathon Digital Holdings, Riot Blockchain, and Canaan Crashed in April

By Anders Bylund - May 7, 2021 at 1:17PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The cryptocurrency miners and mining hardware makers plunged as Bitcoin's surging price chart took a breather.

What happened

Many stocks with tight connections to the cryptocurrency market fell hard in April 2021. North American Bitcoin (BTC -0.38%) miners Riot Blockchain (RIOT 4.31%) and Marathon Digital Holdings (MARA 6.11%) 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 4.18%) 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.

Anders Bylund owns shares of Bitcoin. The Motley Fool owns shares of and recommends Bitcoin. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Marathon Digital Holdings, Inc. Stock Quote
Marathon Digital Holdings, Inc.
$18.24 (6.11%) $1.05
Riot Blockchain, Inc. Stock Quote
Riot Blockchain, Inc.
$9.93 (4.31%) $0.41
Canaan Inc. Stock Quote
Canaan Inc.
$4.24 (4.18%) $0.17
Bitcoin Stock Quote
$24,129.11 (-0.38%) $-90.88

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.