Riot Platforms, Marathon Digital, and Argo Blockchain stock prices have dived in the past few days a the recent cryptocurrency rally fades. RIOT shares plunged to a low of $10, which was ~30% below the highest point this month. Similarly, MARA stock has dropped by over 31% while Argo Blockchain is hovering near the lowest point in March.
Bitcoin mining stocks Correlation with Bitcoin
Bitcoin mining stocks have a close correlation with Bitcoin. They tend to react more vigorously to Bitcoin price moves. For example, at their peak this month, Marathon and Riot Platforms shares were up by more than 200% this year. In the same period, Bitcoin was up by over 80% this year.
Now, as I wrote here, Bitcoin has dropped by over 10% from the year-to-date high while mining shares have plunged by more than 30%. These assets tends to move in the same direction as Bitcoin because a higher BTC prices lead to more profits.
Therefore, the outlook of these stocks will depend on the next Bitcoin moves. I believe that this Bitcoin price plunge is temporary and that it will bounce back in the coming months. In most periods, Bitcoin tends to retreat when it hits a major area of resistance or support.
Historically, Bitcoin rallies don’t happen in a straight line. Most recently, BTC showed some volatility when it first jumped to $25,000. At some point, it made a shake-up that saw it crash below the key support at $20,000. In a recent note, a Standard Chartered analyst wrote that:
"While BTC can trade well when risky assets suffer, correlations to the Nasdaq suggest that it should trade better if risky assets improve broadly.”
Are RIOT, MARA, ARNK good buys?
Therefore, based on this view, I believe that Bitcoin mining stocks will bounce back soon. If this happens, Argo Blockchain share price will rise to the key resistance point at $1.85 while Riot Blockchain will retest the year-to-date high at $14. MARA stock price will rise to $12.65 because the stock has become too oversold.
However, as I wrote in this report, I would recommend investing in Bitcoin itself instead of buying mining stock. It also makes sense to buy Bitcoin instead of an exchange like Coinbase even though the two are correlated.
Companies like Riot Blockchain and Marathon are highly centralized and they constantly face external challenges like weak earnings, hacks, and management challenges. Bitcoin, on the other hand, is seen as a safe asset that has existed safely in the past 14 years.
