The Bitcoin mining industry is showing signs of a revival after a prolonged period of hardship, which saw major bankruptcies and fire sales. Although the economics of mining have only marginally improved as Bitcoin’s value rises above $20,000, capital is beginning to flow back into the sector. This indicates that investor sentiment is still largely driven by Bitcoin’s price rather than mining fundamentals. Lower energy costs in recent months have also given miners some breathing room.
Publicly traded Bitcoin mining firms’ shares have outpaced Bitcoin’s growth this year. A composite index compiled by Luxor of public mining rig manufacturers, foundries, and miners has increased by 52% so far this year, compared with Bitcoin’s 44% rise. Core Scientific and Digihost have seen their shares rise by 693% and 225%, respectively.
CleanSpark leads the pack when it comes to realized hashrate, a metric of miners’ competitiveness on the Bitcoin network, with 224% year-over-year growth. The upcoming earnings season should reveal whether the rally in miners’ stocks is justified.
Despite the rally in publicly traded miners’ stocks, the fundamentals are still far from what investors saw in 2021. The profitability of mining Bitcoin fell back to January levels when the network difficulty increased on Feb. 24. With high inflation and interest rates still lurking in the background, miners are not out of the woods yet.
Neil Galloway, COO of Rebel Mining, advises that miners must implement risk-aversion strategies to survive the remainder of the down market. They should also partner with a host who is financially solvent, owns and operates the underlying infrastructure, and has systems in place to monitor and manage things appropriately. While Bitcoin miners might have found some relief this year, a long way remains to get back to where they were.
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