After a historically bad year for bitcoin mining, public companies that fell into penny stock status rallied in January following a strong bitcoin rally.
2022 was arguably the worst year on record for bitcoin mining. All markets suffered from the unprecedented recklessness of central banks around the world. But because bitcoin is nothing if not volatile, and because mining acts as a leveraged bet on bitcoin itself, the mining sector of the bitcoin economy ended last year battered and bruised. In fact, many public mining companies were relegated to trading as literal penny stocks.
However, thanks to an unexpected and wildly optimistic start to the new year, investors have seen bitcoin mining stocks come back to life. To be sure, the relief in stock prices (and the bitcoin price itself) is welcome. However, how long this rally will last is an open question.
This article summarizes the state of bitcoin mining at the start of this new year, the tragedies left behind in the previous year, and the opportunities ahead.
New Year’s Mining Rally
2023 started with a bang for publicly traded bitcoin mining companies.
So far this year, companies like Riot Platforms, Marathon Digital and CleanSpark have gained between 40% and 110%, according to market data from TradingView. These stock price increases are largely due to a sustained rally in the bitcoin price. Since New Year’s Day, the leading cryptocurrency has won more than 44%. As a result, the mining economy is also improving. hash price has jumped 25% even when the hash rate is set (which, when increased, usually causes the hash price to drop) new all-time highs in January.
Overall though, bitcoin miners ended 2022 on a very pessimistic note. As noted above, many of them traded like literal penny stocks for the holidays.
A Summary of Penny Stocks
Penny stocks intuitively suggest values that trade at market prices of mere pennies. And indeed, many bitcoin mining companies saw share prices drop to pennies. But officially, the definition Penny stock refers to a small company’s stock that trades for less than $5 per share. Penny stocks can be traded on large exchanges like the Nasdaq, which has listed many bitcoin mining companies. But most of them trade via over-the-counter (OTC) transactions.
However, several bitcoin mining companies would have been lucky to see share prices above $5 late last year. The data in the following sections shows that, after reaching market capitalizations in the billions of dollars, not a few, but many mining companies had shares trading below a single dollar.
Bitcoin Mining Penny Stock Data
Bitcoin fell about 65% in 2022. Despite not being the worst bear market crash on record for bitcoin itself, miners weren’t so lucky. The line chart below shows the actual share prices of a select group of leading mining companies through 2022. Even a quick glance at the image will recognize a common theme: down…a lot.
The worst came at the end for these poor companies. By the end of 2022, nearly a dozen companies saw their share prices fall below $1. The following list is made up of bitcoin mining companies that traded below $1 at the end of last year.
- Basic Scientist: $0.20
- Hut 8: $0.87
- TeraWulf: $0.58
- Mawsons: $0.28
- Digital host: $0.47
- BIT Mining: $0.20
- argus: $0.44
- Encryption: $0.62
- Digital Bit: $0.56
- Green Crest: $0.37
- Strength: $0.46
After reviewing all of the above data, you may be wondering: Do bitcoin mining stock prices matter? Obviously not for the long-term success of Bitcoin. But the public mining sector mirrors Bitcoin itself to a non-trivial degree. The mess of bull market risk taking, greed and general excess is not pretty. Hopefully the worst is over.
The road to pink slips
How did the once-booming public bitcoin mining sector fall to penny stock status?
After rising to a total market value of over $100 billion, bitcoin mining companies crashed hard. This effect is somewhat unavoidable when bitcoin itself crashes. The mining business is expensive, capital intensive and highly competitive. When market conditions are anything but perfect, heads start to roll metaphorically.
Also, it’s worth noting that the macroeconomic headwinds facing all markets effectively killed all tech markets across the globe. Bitcoin mining had no chance of escaping the bloodshed. Meta, for example, was the worst performance in the Standard and Poor’s 500 Index last year. Apple, which dominates the weight of the same S&P 500 index with about 6%, also finished last year. down sharply.
But beyond the macroeconomic picture, bitcoin miners are not immune to greed and reckless business decisions. A substantial portion of public mining hash rate growth and mining company valuations were directly tied to over-leveraged investors and traders making risky bets in the same style as other “crypto” companies, which have now gone bankrupt. Miners converting to penny stocks or filing for bankruptcy are the result of the same quality of choices.
New year old miners
Many new mining equipment that entered the market in recent years didn’t make it to 2023. But all the miners that survived last year are now hardened veterans. Is the bear market over? Nobody knows. But in the face of bankruptcies, lawsuits, executive departures, delistings, and more, the miners who are still hashing today can probably keep hashing through anything.
Hopefully the lessons of greed and degeneracy from the last bull market won’t be quickly forgotten, but this author won’t be holding his breath.
This is a guest post by Zack Voell. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
