After a year-long winter that was accompanied by huge losses in the mining sector, Bitcoin’s recent recovery is bringing relief to miners. Moreover, the rise in Bitcoin prices has taken a toll on cryptocurrency mining companies as they have been the highest performers in the past year.
During the 2022 bear market, public cryptocurrency miners saw liabilities of up to $4 billion due to low profitability and share prices. As a result, many miners who were struggling to stay afloat resorted to selling their coin reserves to raise liquidity.
Bitfarm and other record-breaking full-year highs in mining stocks
The first two weeks of 2023 brought relief to miners as the BTC price rebounded. Among the biggest gainers is Bitfarms, which recorded an raise of 140%. in the first 14 days of January.
Marathon Digital Holdings Inc. followed Bitfarms with a 120% surge in mining stocks. Hive Blockchain Technologies Restricted also saw its stock grow, almost doubling its original value in the first two weeks of the year.
MVIS Global Digital Assets Mining Index increased by 64% in January, while Luxor Hash Price Index recorded an raise of 21%. The Luxor Hashprice Index quantifies the possible profit of miners based on the consumption of computing power on the Bitcoin network. The significant raise in these indices partly reflects the raise in mining rewards due to the raise in Bitcoin prices.
The 2021 crypto bull market has prompted many private mining companies to publicly declare their shares. Many Bitcoin mining companies have borrowed huge sums for expansion during the 2021 bull market, hoping to break even as profits emerge. Some invested heavily in purchasing equipment and expanding mining infrastructure.
However, the long crypto winter of 2022 has left these companies vulnerable, leading some to financial meltdown. Liabilities negatively impacted their financial situation during the 2022 bear market. The report shows that public Bitcoin miners have over $4 billion in liabilities, while the largest BTC mining debtors collectively owe nearly $2.5 billion.
These huge liabilities, combined with high energy, affected the operations of these companies in the winter when profits were low. Most had difficulty maintaining minimum operating standards, and some were unable to keep up with production costs. As a result, leading Bitcoin mining companies such as Core Scientific had no choice but to declare bankruptcy.
The surge in Bitcoin mining stocks is boosting the performance of BTC ETFs
BTC price rebound in January is a breath of fresh air for miners. Once-slumping cryptocurrency mining stocks just hit fresh all-time highs. These recent results also affected BTC ETFs. The data shows that BTC ETFs have outperformed most equity ETFs.
After a year of turmoil, ETFs regained top positions on the performance charts in January 2023. Valkyrie’s Bitcoin Miners ETF (WGMI) has outperformed the equity ETF market, up 40% since inception.
Senior ETF Analyst at Bloomberg, Eric Balchunasstated that the Valkyrie Bitcoin Mining ETF is very dense, with investments in just 20 companies, including Intel, Bitfarm and Argo Blockchain.
The WGMI ETF was listed on Nasdaq in February 2022, but did not include direct investments in BTC. Instead, the majority of net assets (at least 80%) offer exposure to Bitcoin through securities with 50% of the profit coming from BTC mining. Valkyrie invested the remaining 20% in companies with a enormous portion of their assets held in Bitcoin.
Overall, cryptocurrency ETFs have underperformed in 2022 due to the prolonged bear market. However, things seem to be getting back to normal as Bitcoin regains lost ground. BTC is currently trading at $21,248 with a 24-hour price change.
Featured image from Pixabay/WorldSpectrum, charts from Tradingview
