Riot Blockchain, Marathon Digital Holdings, and Hive Blockchain are three of the largest cryptocurrency mining companies recently impacted by the Bitcoin price swings, but perhaps not in the way you would expect.
For larger, more established companies like these, the recent price slump was surprisingly beneficial for their bottom line in some ways. Small operation miners tend to face much higher overhead costs to run their daily operation. Staffing, technology, rent, and enormous energy costs quickly pile up for these small initiatives. They generally have little cash on hand and sell a portion of the coins they mine every day, just to keep the lights on. When the coin price drops, they may not be able to sell their coins at a rate high enough to meet overhead costs.
As small operations close up shop in the downturns, legacy companies like Riot, who can mine a coin for around $15,000, often swoop in to buy up their resources. Less mining competition also frees up the network and decreases the amount of energy required to mine a single coin. This increased efficiency further boosts revenue for companies like Riot, Marathon, and Hive.
While a crypto price slump can benefit some mining companies by decreasing competition and operating costs, it can also depress their stock prices. Stock prices for several mining companies were down more than 55% in May from their all-time highs. Low stock prices mean these companies are in an unfavorable position if they need to issue more stock quickly to cover debts.
Besides hurting stock prices, plummeting Bitcoin prices also hurt the value of mining companies. Riot, Hive, and Marathon hold the majority of their earnings in Bitcoin, as do most mining organizations, essentially pegging their company value to the price of the volatile asset.
With crypto prices slowly recovering from the extensive selloff, stock prices for several mining companies are beginning to rise in step. Undoubtedly, investors will be interested to watch how this new asset class reacts over time as crypto becomes more widely established.
Money Machine Newsletter narrows down the universe of stocks to our best ideas, delivered weekly to your inbox before the market opens.
TOP 5 STOCK IDEAS, picked with sniper precision, delivered to your inbox weekly before the market opens.
HIGH CONVICTION TRADE ALERTS throughout the week as we spot them.
NO GUESSWORK. You'll get to see our entry point, stop loss, and profit target.
Access to OUR COMMUNITY of fellow traders, where you can ask questions & post comments.
MONTHLY SUMMARY of which ideas performed best.
Subscribe today, get instant access, and a 7-DAY FREE TRIAL, no strings attached. Cancel anytime.