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US Mining Stocks Continue to Fall Despite Increase in Hashrate

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In Brief

  • Despite favorable data from the Cambridge Center for Alternative Finance, U.S. mining stocks take a hit.
  • There was a peak in correlation between bitcoin and other falling stock indices last week.
  • Environmental concerns, sell-offs, and fear surrounding the crypto market may have all contributed to stock prices dropping.
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The United States may lead the world in crypto mining, but this is not being reflected in stock value, a report claims.

Using data obtained from BTC.com, Poolin, and ViaBTC, The Cambridge Center for Alternative Finance found that the U.S. mining hashrate was up 4% from 35% at the end of August last year to 39% in Jan, but mining stocks have dropped in the last month with the price of bitcoin.

Mining is a computationally-intensive process that allows “validators” to earn rewards for verifying and broadcasting transactions to a blockchain’s public ledger. Verifying transactions involves guessing a unique number associated with each transaction, called a hash, which requires computing power.

The bitcoin algorithm increases the difficulty of verifying transactions as more miners come online, so increasingly powerful computers are needed.

It was feasible to mine bitcoin using a home computer a decade ago. Now public companies in the U.S. like Riot Blockchain, Marathon Digital Holdings, and Core Scientific own server farms more suited to this purpose. 

Mining stock prices fall nearly 50%

Following the recent crash of the stablecoin TerraUSD, many cryptocurrencies also dropped in price, causing the shares of these mining companies to fall. 

Marathon aind Core Scientific have seen a drop in stock price of around 47% since April 18, while Riot’s shares have been halved. Canadian mining company Hut 8 Mining Corp’s shares are similarly down 41%.

Some traders say that investors could be cautious about investing in cryptocurrency, considering bitcoin’s decline of 25% in the last month and the increasing correlation between tech stocks and crypto, which reached a three-month peak last week. 

There has been between 0.67 and 0.78 level of correlation between cryptocurrencies and stock indices (1 being completely correlated, 0 implying no relationship), with bitcoin falling 10% on the day of peak correlation. 

According to the chief of Numerai, a hedge fund in San Francisco, crypto is now “part of the mainstream financial system, and that’s not good for its viability as an alternative asset class. It’s not serving its original purpose as an uncorrelated asset.” 

Traditional investors selling digital assets to raise funds

Some analysts say that many traditional investors have added crypto to their portfolios. As tech stocks plummet, they have been selling digital assets to raise money.

The growing concern surrounding the environmental impacts of mining could also contribute to the decline in mining stock price, as 160 crypto bills are awaiting consideration in over 30 states. 

New York recently passed a moratorium bill that would not allow the resurrection of old fossil-fuel power generation facilities for mining purposes. 

Miners need cheap electricity and increasing computing power to make their operations more competitive, sometimes leading to the revival of old fossil fuel plants’ cold embers, an initiative opposed by environmental advocates.

Finally, investors could be discouraged from buying due to the fear in the market, impacting the raising of capital. “The capital markets and formation of capital is challenging for many in our industry,” said Mike Levitt, CEO of Core Scientific, last week.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...
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