Compared to Friday's close last week, shares of cryptocurrency mining company Bitfarms (BITF 4.88%) have absolutely plunged. Down 29% over the past five days, there are few companies in the market that can match such an ugly weekly return, raising the question: What is going on with this sector?
Many investors have noted that there are some potential lights at the end of the tunnel for many Bitcoin miners, such as Bitfarms. These companies are aggressively shifting their business models toward using their computing resources to support data center, cloud, and AI ambitions. Those catalysts should, in theory, play into a bullish thesis for those looking to invest in companies that essentially provide computing power to the market.
But not so fast: Let's dive into what drove Bitfarms lower this week, and why this decline looks to be one that could be too dangerous to get contrarian about.
Source: Getty Images.
Earnings were the big story this week
As I wrote recently, a good chunk of this week's move took place yesterday, when Bitfarms' stock dropped more than 12% following its highly anticipated third-quarter earnings report.
Some of this week's drop can certainly be explained by outside events. Bets that a shift by the Federal Reserve in its path of interest rate cuts could unfold have driven yields higher, and lowered valuations for risk assets. Bitfarms, which is highly tethered to the price of Bitcoin, has certainly felt the impact of the world's largest cryptocurrency moving back toward the $95,000 level (down from around $125,000 just weeks ago).
But Bitfarms' revenue and earnings both missed expectations this past quarter, and the company said it intends to shift its focus toward providing computing resources to other cloud and AI ambitions, and it's unclear whether these losses could widen as the company invests in shifting its capacity to other sectors.
I think that is likely the case, and so does the market. Right now, investors are rewarding companies with the best balance sheets and profitability outlooks. On both those fronts, Bitfarms is lagging.
This move lower is likely to continue into next week, but I'll provide updates if anything material shifts the narrative around this key company. For now, Bitfarms stock looks too risky to invest in, at least for my personal portfolio.
