Bitcoin mining stocks outlook for 2024

on Jan 29, 2024
  • Bitcoin mining companies are in a lot of trouble this year.
  • Like EVs, they have all plunged by double-digits this year.
  • These companies are set to have some short-term volatility this year.

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Bitcoin mining stocks have had a difficult start of the year, with most of them crashing by double-digits. Marathon Digital (MARA), Riot Platforms (RIOT), Bitfarms (BITF), CleanSpark (CLSK), and Cipher Mining (CIFR) stocks have all crashed by between 20% and 33%. 

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Bitcoin miners lagging BTC price

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Bitcoin mining stocks have underperformed BTC prices this year. While the firms have retreated by double digits, Bitcoin is down by about 14% from the highest point this year. Recently, however, Bitcoin has rebounded by almost 10% from its lowest point last week.

These companies have underperformed because of a situation known as buying the rumour, selling the news. This is a situation where investors buy an asset ahead of a major news event and then sell it after it happens. In this case, they rallied by triple digits ahead of the SEC’s approval of a spot Bitcoin ETF.

Still, there are signs that the recent Bitcoin sell-off will end soon. For one, analysts note that outflows from Grayscale Bitcoin Trust (GBTC) have slowed in the past few days. 

Most investors holding GBTC, including Cathie Wood, dumped their assets because of the substantial expense ratio of 1.50%. In comparison, ETFs by companies like Fidelity. Ark Invest, and Invesco have a much lower expense ratio.

Catalysts for BTC mining stocks in 2024

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Bitcoin mining stocks tend to track the price of Bitcoin. For example, most of them jumped by more than 300% in 2023 as Bitcoin soared by over 150%. This happens because higher BTC prices lead to more margins and profits for these companies.

Additionally, Bitcoin mining companies hold vast BTCs on their balance sheets. As a result, higher prices tend to increase their intrinsic value. For example, Marathon Digital now holds about 15,000 Bitcoins valued at over $630 million. Riot Platforms holds over 7,350 coins valued at more than $309 million.

Looking forward, there are three main catalysts for BTC mining stocks this year. First, there is the Federal Reserve, which has hinted that it will continue cutting interest rates later this year. Expectations are that the Fed will deliver three cuts. In most cases, these cuts tend to boost Bitcoin and other risky assets like mining stocks.

Second, there is the rising Bitcoin demand from institutional investors after the ETF approval. While demand has been underwhelming, there is a likelihood that it will rise gradually this year.

Third, Bitcoin mining stocks will likely be affected by the upcoming halving event scheduled for April. Halving reduces the number of Bitcoin rewards that move to mining companies. 

Therefore, the implication is that these companies will see lower revenue growth and profitability when it happens. However, history shows that mining companies tend to see higher revenues after halving happens. For example, Marathon Digital has boosted its revenue from $1.6 million in 2018 to over $259 million in the trailing twelve months (TTM).

Similarly, Riot Platforms’ revenue has jumped from $7.8 million in 2018 to $262 million in TTM. This happens because Bitcoin tends to rise after halving and these companies are constantly investing more resources in new hardware.

Therefore, there is a likelihood that rebounding Bitcoin prices will push mining stocks higher in 2024.

There are risks to this thesis. For example, it is not mandatory that Bitcoin rises after halving. In some cases, Bitcoin tends to drop immediately after halving happens as investors sell the news. Also, these companies tend to have substantial depreciation costs as the mining technology advances.

Bitcoin Mining Stock Market