- Bitcoin mining stocks have plunged by over 30% in 2024.
- The same is true with companies like Coinbase and MicroStrategy.
- This plunge is because of the ongoing performance of Bitcoin.
Bitcoin-related stocks have suffered a harsh reversal in the past few weeks as concerns about demand eases. Bitcoin mining stocks like Marathon Digital (MARA), Riot Platforms (RIOT), and Argo Blockchain have all plunged by more than 30% this year. This means that they have underperformed the S&P 500 and Nasdaq 100 indices, which are sitting near their all-time highs.
Bitcoin mining stocks have nosedived
Bitcoin mining stocks are falling for two main reasons. First, Bitcoin price has dropped from the YTD high of $49,000 and is consolidating at $42,000. It has remained in this range in the past two weeks as its attempts to recover failed. Bitcoin mining companies do well when BTC price is soaring and vice versa. For example, most of the, jumped by over 300% in 2023 as BTC jumped by 150%.
Second, Bitcoin mining companies retreated ahead of the upcoming Bitcoin halving event scheduled for April this year. Halving is a situation where the rewards provided to miners are reduced by half. In this case, it is estimated that there are about 900 Bitcoins mined per day. When halving happens, this number will be slashed by half.
This means that, if the price of Bitcoin does not rise, mining companies will see their daily rewards fall by half. As such, mining companies can compensate this by increasing their mining hardware in preparation for this move. Indeed, companies like Marathon Digital and Riot Platforms are constantly increasing this production.
The other hope is that the price of Bitcoin will do well after halving by increasing Bitcoin’s supply. This will happen at a time when demand is rising following the decision by the SEC to approve 11 spot Bitcoin ETFs.
Coinbase and MSTR shares have cratered
Mining stocks are not the only ones in trouble. Coinbase stock has crashed by 32% while MicroStrategy’s MSTR is down by over 32% in 2024. MicroStrategy has dropped because of its close correlation with Bitcoin.
While MSTR is a technology company, it is often seen as a proxy for BTC because of the vast amount it has in its balance sheet. Some analysts see it as being a better alternative to popular spot Bitcoin ETFs because it does not have an expense ratio. Coinbase shares have retreated as the volume of cryptocurrencies ease recently.
The dip of these companies will likely be a good one to buy. Besides, Bitcoin is still a rare asset that will get rarer after the upcoming halving event in April. Also, Bitcoin tends to go through these consolidation phases after making a big move.
The other catalyst for Bitcoin and its associated companies is that the Fed will likely start to cut interest rates soon. In a report on Monday, the OECD said that the Fed will deliver several cuts this year as inflation slips.
Looking ahead, there are a few dates to have in mind. The first one is February 15th when Coinbase will publish its earnings. These will be important results because they will provide more color about its ETF custody business.
The other important date will be today (Feb 6) when MicroStrategy will publish its financial results. Other earnings dates will come in March when companies like Riot Platforms and Marathon Digital will release their numbers.
