Crypto Crash on Steroids: Cryptocurrency Miners Sink More Than 9% Today

What happened

Leading cryptocurrency miners Digital Marathon (NASDAQ: MARA)And Blockchain cell (NASDAQ: HIVE)And Bitfarms (NASDAQ: BITF), And Cottage mining 8 (NASDAQ: HUT) All closed today down more than 9%. This move came after a sharp sell-off in the price of Bitcoin and other influential cryptocurrencies, with bitcoin trading down 5.2% in the past 24 hours, as of 4:30 PM ET.

It also appears that investors are seeking regulatory change underway in the crypto mining sector, given news last week that prominent Democratic lawmakers are looking into the environmental impacts of mining activity domestically.

Image source: Getty Images.

so what

The Bitcoin price drop is definitely bearish for the entire crypto-mining sector. As the price of bitcoin drops, large-scale mining will see profit margins shrink, assuming global bitcoin mining production remains stable or grows. Like any commodity, bitcoin mining involves supply and demand. More miners (supply) or lower demand (reflected in the bitcoin price) represents bearish for crypto miners as a whole.

Today, it seems that both low demand and high supply are affecting these miners. In fact, the crypto mining activity was very interesting to follow.

This year, the Chinese ban on crypto-mining related to unsafe coal mining and environmental concerns has sharply reduced the global attrition rate. The Terahash rate measures the computing resources running the Bitcoin blockchain at any given moment. This measure of computing power was halved immediately after China’s announced crackdown.

Since then, crypto miners (mainly focused in the United States, Canada and other countries with cheaper electricity, such as Kazakhstan) have picked up the slack. In fact, the US is now said to be responsible for 35% of the global bitcoin mining churn, more than double the rate before the Chinese crackdown.

However, given the potential for regulatory involvement in the crypto mining space, investors seem to be concerned that there is no safe jurisdiction at the moment.

What now

The margin that Bitcoin miners can earn on their mining activities usually provides leverage for crypto prices. This is because the high fixed costs associated with setting up rigs mean that the high crypto price translates (almost directly) into these companies’ bottom line. Accordingly, it is clear that any kind of downward trend in bitcoin prices is a catalyst that investors will not like.

The sharp drop that bitcoin miners have experienced today in relation to the price of bitcoin again appears to be linked to the global regulatory environment shifting under the feet of crypto miners. Environmental concerns are real, and investors are pricing the risks in these stocks.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.