14 Feb 2022

Collapse in mining stocks since bitcoin's all-time high

Since bitcoin’s all-time high in November, the cash flow of mining has plummeted, leading to a collapse in the shares of bitcoin mining companies.
mining stocks performance.svg
Source: Tradingview
Since November 9th, shares of the two largest publicly listed miners, Marathon and Riot, are down 66% and 55%. The bitcoin price is down by 36% in the same period – showcasing the higher volatility of mining stocks compared to bitcoin.Lower operating margins have reduced miners' profits, leading to a steep reduction in their share prices. The falling bitcoin price coupled with increasing hashrate is responsible for bitcoin mining’s profitability slump.We estimate the cash flow of mining one bitcoin for two of the most popular mining rigs: Antminer S9 and S19. S9 demands more electricity to mine the same amount of bitcoin than its big brother S19.Cash flows have decreased by 60% for the S9s and 41% for the S19 since November 9th. Less efficient models, like the S9s, are more vulnerable to changes in the bitcoin price.
cash flow of mining 1 bitcoin
Source: Tradingview (Coinbase), Hashrate Index
Mining was highly profitable during the Spring and Autumn of 2021, making many miners decide to increase capacity.Since bitcoin’s all-time high on November 9th, bitcoin has plummeted 36%, but hashrate has grown by 23%. Typically, the hashrate follows the bitcoin price, but it has been different this time.Since it takes several months to manufacture mining rigs and build mining facilities, most of the capacity increases that started during the Spring of 2021 first came online at the end of 2021. Therefore, the hashrate increased while the bitcoin price fell, hammering profitability.
bitcoin hashrate
Mining profitability started climbing again from the middle of January thanks to the rising bitcoin price. Nevertheless, capacity increases decided during the super-profitable Autumn of 2021 will likely come online in the next months. Therefore, mining profitability is likely to keep dropping unless the bitcoin price continues its short-term upward trend.In November, the market might not have considered that the mining industry would become increasingly competitive due to new capacity coming online. This underestimation by the market and the decreasing bitcoin price were all it took for bitcoin mining stocks to collapse.This massive decline should have taught bitcoin mining investors that the high beta behavior of bitcoin mining stocks is a double-edged sword.
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