Despite the rally in bitcoin, shares of the largest crypto miner companies have tanked. Thus, the price of Valkyrie Bitcoin Miners ETF is down more than 20% since February 27. Marathon Digital Holdings and Riot Platforms plunged 18.5% and 21.9%, respectively. CleanSpark is 7.5% in the red, and TeraWulf sank 25.4%. Why is bitcoin heading north while miner stocks are moving south? Could this be a sign of future headwinds for the flagship cryptocurrency?
There are several reasons for the downturn in shares of mining companies against the backdrop of a rally in bitcoin:
1. Investor concerns about mining profitability after the upcoming bitcoin halving in 2024. Cutting the block reward in half could make mining unprofitable for many companies at current electricity prices.
2. The investment flow from shares of miners into new stock market instruments offering direct exposure to Bitcoin (ETF). Why buy mining stocks when you can gain exposure to bitcoin through ETFs?
3. Possible exhaustion of upside potential of stocks in miner companies after their rally since the end of January. Investors are taking profit ahead of the halving event.
4. There are still fears of a recession in the US economy and a decrease in demand for risk assets, including crypto miner stocks.
Overall, most likely at issue is a short-term correction and rebalancing of investor portfolios, and not problems facing bitcoin itself. The downturn picked up momentum when bitcoin reverted to a correction at the $64k level. Nonetheless, the risk of decreased mining profitability after the BTC halving should be taken into account.