Bitcoin mining stocks have come under intense pressure in the past few years as investors remain concerned about their performance after halving. CleanSpark (CLSK) stock has tumbled from the year-to-date high of $23.50.
Marathon Digital (MARA) shares have retreated from $31 to $19 while Riot Platforms (RIOT) plunge from a high of $18.6 to $10.30. Bitfarms stock is down from $3.6 to $2.2. The same is true with other mining stocks like Argo Blockchain, Hut 8 Mining, and Cipher Mining.
CLSK vs BITF vs MARA vs MARA stocks chart
Why Bitcoin mining stocks have retreated
Investors are concerned about the impact of halving on these companies. Bitcoin Halving, which will happen on April 22nd, will reduce the block rewards offered to miners. The implication is that the number of coins produced per day will drop from about 900 to 450.
Therefore, if everything remains constant, these companies will see reduced revenues and profitability this year as they embrace a new normal.
This is notable since most of these companies have been producing fewer Bitcoins for a while. For example, Riot Platfotms mined 418 coins in February down from 520 in January and 675 in February of last year.
Marathon produced 833 Bitcoins in February, 23% lower than 1,084 in January. The company attributed this to its maintenance work that pushed it to operate at 61% capacity.
CleanSpark produced 648 coins in February, an improvement from 577 in the previous month. Bitfarms, on the other and, produced 286 coins in March compared to 300 in February and and 424 in March last year.
Therefore, it is clear that these companies have not been boosting production substantially before halving. That means that they will likely struggle as the mining difficulty increases.
Bitcoin miners have diluted shareholders
Their stocks have also plunged as these companies have turned to equity raises to boost their balance sheets and upgrade their fleet. Bitfarms has increased the number of outstanding shares from 240 million in April last year to 340 million today.
Similarly, Marathon has increased these shares from 167 million in 2023 to 242 million. Riot Platforms outstanding shares have moved from 166 million to 230 million.
Share count increase is the opposite of share repurchases in that it leads to more dilution for holders. These companies have done this to fund their mining equipment upgrades and to take advantage of the elevated stock prices.
Therefore, Bitcoin mining companies face major challenges in the coming months as halving is set to make a tough period tougher.
The only hope is that analysts expect that the price of Bitcoin will continue soaring in the coming months. Standard Chartered sees it soaring to $150,000. Higher BTC prices will offset the reduction of Bitcoin production.
Also, these companies will benefit as the inefficient mining companies are set to go out of business. Finally, history suggests that Bitcoin mining companies do well over time. Most of them are trading at a higher price since the last halving in 2020.
Therefore, I suspect that these Bitcoin mining stocks will be a bit volatile in the coming months. In the long-term, however, I expect them to continue doing well. In a recent note, analysts at JP Morgan pointed to Riot Platforms as being one of the best mining companies. They said:
"We think Riot has a more visible path to growth than other publicly listed miners that need to acquire smaller sites or buildout greenfield facilities to reach near-term hashrate targets.”
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