After a year-long winter accompanied by huge losses in the mining sector, Bitcoin’s recent recovery is a relief for miners. In addition, the Bitcoin price rally has spilled over into crypto mining stocks as they witness their highest performance in the past year.
In the 2022 bear market, public crypto miners posted up to $4 billion in liabilities due to low profitability and share prices. As a result, many miners struggling to stay afloat resorted to selling their coin reserves to increase liquidity.
Bitfarm and others record year-long highs in mining stocks
The first two weeks of 2023 have brought relief to miners with the BTC price recovery. One of the top winners is Bitfarms, that recorded a 140% increase in the first 14 days of January.
Marathon Digital Holdings Inc. followed Bitfarms with a 120% increase in mining stocks. Hive Blockchain Technologies Limited also saw an increase in its inventories to almost double its original value in the first two weeks of the year.
MVIS Global Digital Assets Mining index rose 64% in January, while the Luxor hash price index saw a 21% increase. The Luxor Hashprice Index quantifies miners’ potential profit based on the processing power in the Bitcoin network. The significant rise in these indices partly reflects an increase in mining rewards as a result of Bitcoin’s price rally.
The crypto bull run of 2021 led many private mining companies to take their shares public. Many Bitcoin mining companies borrowed huge amounts for expansion during the 2021 bull market, hoping to break even when profits come. Some invested heavily in purchasing equipment and expanding their mining infrastructure.
However, the long crypto winter in 2022 left these companies vulnerable, sending some into a financial crisis. The liabilities negatively impacted their financial position during the 2022 bear market. The report shows that public Bitcoin miners have more than $4 billion in liability, while the top BTC miners collectively owe nearly $2.5 billion.
These huge liabilities plus high energy impacted these companies’ operations during the winter when profits were low. Most of them struggled to maintain minimum operating standards, while some could not keep up with production costs. As a result, leading Bitcoin mining companies like Core Scientific had no choice but to go out of business.
Spike in Bitcoin mining stocks boosts performance of BTC ETFs
The BTC price recovery in January is a breath of fresh air for miners. Once declining crypto mining stocks have just hit new all-time highs. This recent performance has also had an impact on BTC exchange-traded funds (ETFs). Data shows that BTC ETFs have outperformed most equity ETFs.
In January 2023, after years of turmoil, ETFs recaptured the top spots on the performance charts. Valkyrie’s Bitcoin Miners ETF (WGMI) outperformed the equity ETF market with a 40% increase year-to-date.
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 the Nasdaq market in February 2022, but did not include direct BTC investment. Instead, most of its net assets (at least 80%) provide exposure to Bitcoin through securities whose 50% profit comes from BTC mining. Valkyrie invested the remaining 20% in companies whose majority of assets held are Bitcoin.
Overall, crypto ETFs underperformed in 2022 due to the ongoing bear market. But things appear to be returning to normal as Bitcoin regains lost ground. BTC is currently trading at $21,248 in a 24-hour price change.
Featured image from Pixabay/WorldSpectrum, charts from Tradingview