2022 was not only a terrible year for the crypto markets, but also for the stock prices of those companies involved in Bitcoin mining.
The collapse of Bitcoin mining-related stocks
When analyzing the 2022 performance of the stocks of some of these companies, one finds that they have been decidedly catastrophic, with losses far greater than those of stocks in other sectors.
Taking the Nasdaq 100 index as a reference, during 2022 it fell from 16,300 points down to 10,900 points, a loss of 33%. The crypto markets over the same period lost nearly twice as much, with market capitalization plummeting 65% from $2.3 trillion to just over $800 billion.
Marathon Digital Holdings (MARA), also listed on Nasdaq, lost 87%, as did Hive Blockchain Technologies (HIVE), which lost 88%.
This was therefore a near-vertical collapse, due both to the fact that a real speculative bubble had inflated in 2021 on these stocks, and perhaps also to the fact that during 2022 Ethereum mining was shut down for good, with only Bitcoin mining remaining truly attractive to these giants.
Things, however, seem to have changed drastically in this early 2023.
Indeed, it is possible that last year’s collapses were overdone, but more importantly, it is possible that the exit of some Bitcoin mining companies due to their financial failure, such as Core Scientific, has made this market somewhat less competitive and difficult for the remaining companies.
Then again, 2022 was the black year for mining, so the companies that managed to weather this veritable catastrophe have shown remarkable resilience.
Although the rebound in these early weeks of 2023 is nowhere near bringing Bitcoin mining company stocks back to 2021 levels, it still seems to suggest that the 2022 slump is over.
Bitfarms stock, for example, has gained 178% since the December lows, but is still 78% below early 2022 levels. The current price is in line with that of December 2020, which is after the last big bull run had just begun.
MARA is +163% since December, but -74% since January 2022, while HIVE is +135% since December, but -75% since January 2022.
This remarkable rebound clearly shows that the reason for such high percentages are the too low prices touched in December, after a year of probably excessive losses.
However, 2022 has objectively been such a difficult year for mining that the fear of burst bankruptcies among mining companies was widespread.
On the other hand, these are companies that have to invest a lot, and a lot up front, and thus may not be able to bear all the costs if there is a sharp drop in revenues. This is precisely what has happened, with the inevitable bankruptcy of some of them.
Now that the costs faced by those mining Bitcoin have come down, and that competitiveness in this sector has been reduced, these fears have partly dissipated, allowing the share prices of these companies to return to less abnormal levels.
In fact, the losses accumulated so far from January 2022 to January 2023 by the share prices of mining companies are in line with those of the crypto markets, although still slightly higher. In contrast, those accumulated until December were definitely excessive.
Bitcoin mining: the volatility of shares
In some ways, it is curious that the share prices of these companies listed on a traditional exchange like the Nasdaq turn out to have been more volatile than even those of the major cryptocurrencies, but the mining sector has some additional issues to resolve that make it very difficult, very competitive, and therefore highly volatile.
The biggest problem is precisely the need to have to take huge risks by making large investments in machinery and infrastructure long before they can start generating revenue.
In contrast, crypto markets evolve very quickly, thus being able to undermine those companies that have taken the most risks. In such a scenario, both excess enthusiasm during bull runs and excess fear during bear markets are justified.
It is enough to consider that, for example, Bitfarms’ stock price had posted an incredible +4,000% between October 2020 and November 2021, which is extremely abnormal performance on traditional stock exchanges.
It is clear that this was just a speculative bubble of enormous size, larger even than the bubble that swelled in the crypto markets.
At that point, it is more than obvious that at the time of the burst the losses were so great.
The current price of Bitfarms however is still 350% higher than it was in October 2020, which shows how the sector actually still holds promise, as a whole. It remains to be seen whether bubbles of this size can be repeated in the future, or whether the one in 2021 was just an isolated case.