Leading cryptocurrency miners Marathon Digital ( MARA -11.30% ), Hive Blockchain ( HIVE -11.48% ), Bitfarms ( BITF -9.64% ), and HUT 8 Mining ( HUT -9.25% ) all closed more than 9% lower today. This move followed a sharp sell-off in the price of Bitcoin and other influential cryptocurrencies, with Bitcoin trading 5.2% lower over the past 24 hours, as of 4:30 p.m. ET.
Investors also appear to be pricing in ongoing regulatory change in the crypto-mining sector, given last-week’s news that prominent Democrat lawmakers are looking into the environmental impacts of mining activity domestically.
A declining Bitcoin price is certainly bearish for the entire crypto-mining sector. As the price of Bitcoin declines, large-scale mining operations will see margins squeezed, assuming global Bitcoin-mining production remains stable or grows. Like any commodity, Bitcoin mining involves supply and demand. More miners (supply) or less demand (reflected in the price of Bitcoin) are bearish for crypto miners as a whole.
Today, it appears both lower demand and higher supply are plaguing these miners. Indeed, crypto-mining activity has been intriguing to follow.
This year, a Chinese ban on crypto mining related to unsafe coal mining and environmental concerns led to a sharp drop in the global terahash rate. The terahash rate measures the computing resources powering the Bitcoin blockchain at any given moment. This computing-power measure got cut in half immediately following China’s announced crackdown.
Since then, crypto miners (mainly focused in the U.S., Canada, and other countries with cheaper electricity, like Kazakhstan) have picked up the slack. In fact, the U.S. now reportedly accounts for 35% of the global terahash rate for Bitcoin mining, more than double the rate prior to the Chinese crackdown.
However, given the potential for regulatory involvement in the crypto-mining space, investors appear to be concerned that no jurisdiction is safe right now.
The margin Bitcoin miners can earn on their mining activities typically provides leverage to crypto prices. This is because the high fixed costs associated with setting up rigs means a higher crypto price translates (almost directly) to these companies’ bottom lines. Accordingly, any sort of bearish trend in Bitcoin prices is obviously a catalyst investors won’t like.
It appears the steeper decline Bitcoin miners saw today relative to the price of Bitcoin is once again related to the global regulatory environment shifting under the feet of crypto miners. Environmental concerns are real, and investors are pricing these risks into these stocks.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.