Crypto mining firms experienced double-digit drops after Bitcoin (BTC) had its most significant decline in nearly four months. Over the weekend, the value of Bitcoin dropped to as low as $40,000 after reaching a high of $43,900, leading to a ripple effect across the mining industry.
TeraWulf (NASDAQ: WULF), Bit Digital (NASDAQ: BTBT), Marathon Digital (NASDAQ: MARA), and Riot Platforms (NASDAQ: RIOT) all saw their stock prices suffer double-digit losses, with the lowest point of the drop ranging from 14.5% to 23.5%. The leveraged nature of mining operations, as well as the decline in Bitcoin’s value, explain the greater losses incurred by mining companies compared to the cryptocurrency itself.
Investors are worried about the upcoming halving of Bitcoin in 2024, which would halve the number of Bitcoins miners receive per block. This would result in a decrease in profit margins for mining companies.
The decline in Bitcoin’s price occurred late in the weekend when trading typically exhibits lower liquidity, which has led to questions about the cause of the drop. Some attribute it to funding rates of perpetual futures contracts, which dropped below 0.1%, suggesting a decrease in market leverage.
The plunge in Bitcoin’s price, coupled with the broader selloff in the crypto market, indicates a deleveraging phenomenon rather than a fundamental news catalyst. The cryptocurrency’s rally this year was driven by expectations of regulatory approval for US exchange-traded funds directly investing in the cryptocurrency, expanding the potential investor base. Additionally, bets on the Federal Reserve cutting interest rates in 2024 have further fueled the rally.
Richard Galvin, co-founder at Digital Asset Capital Management in Sydney, highlighted the substantial rise in market leverage and said the recent fall is due to a market deleveraging rather than any specific news. “The current fall looks like a market deleveraging as opposed to any fundamental news catalyst,” he said.
