What happened
Shares of crypto mining stocks got absolutely crushed in trading on Monday as the prices of cryptocurrencies dropped. The most notable decline came from Bitcoin (BTC +3.38%), which was down 16.4% over the last 24 hours as of 3 p.m. ET and has during that period been at levels below $23,000.
On the mining side, Bitfarms (BITF +0.67%) fell by as much as 15.7% Monday, Hut 8 Mining (HUT +0.00%) dropped 17%, Bit Digital (BTBT +3.41%) was down as much as 15.5%, Canaan (CAN 0.66%) dropped 14.5%, and Riot Blockchain (RIOT +2.53%) was down 15.7%. Each of these stocks had recovered slightly near the end of trading, but all were down by double-digit percentages for the day.
CRYPTO: BTC
Key Data Points
So what
Cryptocurrency miners generate tokens as revenue, so the dropping value of those cryptocurrencies will ultimately mean less money for them. But to make matters worse, most of these companies carry significant amounts of the Bitcoin that they've mined on their balance sheets. Its decline is taking a big bite out of the value of the assets they hold.
Moreover, mining Bitcoin comes with significant fixed costs. Those that buy computing equipment have upfront outlays that need to be paid off by mining, but some lease space from cloud companies. Those expenses won't go away even if the price of Bitcoin keeps falling.
NASDAQ: HUT
Key Data Points
It's actually surprising that the shares of crypto miners haven't fallen further given the fact that they are so leveraged to the price of Bitcoin and there's real business risk if tokens lose more ground.
Now what
I don't know where Bitcoin miners go from here. These businesses need the price of Bitcoin to remain elevated in order to operate profitably, but it keeps dropping with no end in sight. Monday's news that the major crypto lending company Celsius Network had paused all transfers and that even crypto exchange Binance had paused withdrawals from Bitcoin accounts were both negative signs for the industry.
Confidence appears to be waning in cryptocurrencies, and the one safe haven in the asset class was supposed to be Bitcoin, but even that thesis is falling apart. If we aren't yet at the bottom, miners could soon be forced to sell some of their Bitcoin to fund operations, which would make the downward pressure on prices worse.
Outside of a recovery in the price of Bitcoin, I don't see a great path forward for miners. Their costs are relatively fixed, but the tokens they're generating are worth less almost every day.
Investors looking for exposure to Bitcoin may be better off just buying the tokens. At least a Bitcoin can't go bankrupt like a miner can, and given current market conditions, a lower-risk asset may be the wise way to go.
