Following Bitcoin’s most significant decline in almost four months, crypto mining firms are grappling with double-digit drops. Over the weekend, Bitcoin’s value plummeted to $40,000 from a high above $43,900, triggering a ripple effect across the mining industry.
Several mining companies experienced substantial stock price declines. TeraWulf (NASDAQ: WULF) plummeted by 23.5%, Bit Digital (NASDAQ: BTBT) saw a decline of 19.7%, Marathon Digital (NASDAQ: MARA) dropped by 15.2%, and Riot Platforms (NASDAQ: RIOT) witnessed a 14.5% decrease at its lowest point.
The sharp decline in Bitcoin’s price, combined with the leveraged nature of mining operations, led to more significant losses for mining companies than the cryptocurrency itself. As these firms generate and hold Bitcoin on their balance sheets, a drop in Bitcoin’s value adversely affects both their income statements and balance sheets.
Investors are now expressing concerns about Bitcoin’s upcoming halving in 2024, during which miners will receive half the number of Bitcoins per block, impacting profit margins for mining companies.
The sudden drop in Bitcoin’s price over the weekend raises questions, given the traditionally lower liquidity during that period. Some attribute the decline to funding rates of perpetual futures contracts, indicating reduced market leverage as traders adjust their positions.
Bitcoin’s recent tumble toward $40,000 is seen as a potential deleveraging phenomenon rather than a result of fundamental news catalysts. The cryptocurrency’s rally this year, driven by expectations of regulatory approval for the first US exchange-traded funds investing in Bitcoin, has expanded its potential investor base. Additionally, bets on the Federal Reserve cutting interest rates in 2024 have fueled the broader virtual currency market.
Richard Galvin, co-founder at Digital Asset Capital Management in Sydney, highlighted the substantial rise in market leverage, attributing the recent fall to a market deleveraging rather than any specific fundamental news catalyst. “The current fall looks like a market deleveraging as opposed to any fundamental news catalyst.”
