Digital gold mining companies suffered more severe reductions than their legacy counterparts in 2022.
Bitcoin’s prominent memetic narrative as “digital gold” raises a comparison to the actual yellow metal. But since the advent of Bitcoin, comparative insights into the mining sectors underlying both assets are all too often lacking.
In May 2022, this author published data on the gold/bitcoin mining contrast, as digital gold producers significantly underperformed miners. Now, the time seems right to provide a follow-up overview of some recent market data for bitcoin and gold miners.
The past year of unpredictable economic turmoil and bear market financial brutality have highlighted some important idiosyncrasies between gold and its blockchain-based counterpart. In the following paragraphs, the data will highlight the similarities and differences between the two “mining” industries. In ways not often revealed by Twitter jokes, gold and bitcoin miners have a lot in common.
Inside Bitcoin and Gold Mining Market Data
Bitcoin bulls need to sit down before continuing to read this section. Peter Schiff will be elated.
2022 was not an easy year for anyone, but bitcoin miners suffered from particularly difficult market conditions. Compared to bitcoin miners, gold mining stocks had a pretty easy year. A select group of public bitcoin and gold mining companies are represented in the bar chart below. Annual percentage-based returns since 2022 for all companies are displayed on the chart.
Measured in percentage drops from all-time highs, gold is winning again. (Go ahead and laugh, Schiff.) As of this writing, gold is about 7% below its all-time high, about the same price as it was in May when this author last wrote about gold and bitcoin miners. Meanwhile, digital gold is trading more than 65% below its all-time high, reached in late 2021.
But Bitcoin being outperformed by gold is not the historical norm. Throughout 2021, bitcoin and its mining companies enjoyed a strong and prolonged uptrend. Gold and gold miners lagged significantly over the same period.
And the honey badger should never be discounted.
Mining Brutality in the Bear Market
Regardless of how gold miners performed, last year was arguably the toughest bear market period in Bitcoin history. Therefore, the underperformance of gold (or any other asset) is not a surprise.
The following is a brief synopsis of what bitcoin miners survived in the past year leading to, among other things, underperforming yellow metal ore miners.
For public mining companies, potential delisting notices were all too common. In August 2022, BIT Mining received a realize from the New York Stock Exchange (NYSE) about possible delisting due to floor price standards. The same month, Mawson He received a notice of possible delisting for the same reason. In October 2022, Digithost received the same notice of possible delisting, as reported by The Block. Greenidge Generation received a realize of possible delisting in mid-December 2022. Bitfarms received a realize a day after Greenidge for the same reasons. And Canaan, a Nasdaq-listed manufacturer of mining hardware, is also He received notice of possible delisting because you used an auditor whose work cannot be inspected by the US auditing regulator.
Mining executives also left en masse, willingly or not. Dave Perrill, former CEO of Compute North, resign in September 2022. Jeffrey Kirt, who has led the Greenidge Generation since 2021, abruptly resign in early October 2022. Whitney Gibbs, who co-founded Compass Mining, also abruptly resign amid “setbacks and disappointments” in July 2022. Emiliano Grodzki, who co-founded Bitfarms in 2017, Announced his resignation three days before the end of 2022.
Mining bankruptcies were in the news every month last year. Compute North filed for bankruptcy in September 2022. Seven months before bankruptcy, the company raised $385 million. Core Scientific, the largest publicly traded bitcoin mining company, also archived for bankruptcy a few days before Christmas. Celsius, a prominent crypto-lending platform, also saw its major mining unit go bankrupt just months after the team Announced his plans to go public. BlockFi was another prominent crypto lending service that maintained a sizable mining unit and has archived bankruptcy Bloomberg reported that Marathon revealed more $80 million of exposure to Compute North, now bankrupt. Argo accidentally posted fully prepared bankruptcy filings on your website before a $100 million deal with Galaxy Digital mining equipment helped Argo avoid “real” bankruptcy.
And many mining lawsuits were filed. The block software was defendant. Iris Energy faced a class action lawsuit lawsuit. Washington County Tennessee defendant BrightRidge, a local mining company. Riot defendant North data. Whinstone, Riot’s flagship mining subsidiary, counter sued Internet CMO of Japan in a four-year ongoing dispute. And Core Scientific was defendant.
Suffice to say, the mining crews that survived last year will probably survive anything.
Darkest before dawn?
Given the market conditions in the bitcoin mining sector last year, it would be a shock to any investor if bitcoin miners outperformed their gold counterparts. But does a year of poor performance affect Bitcoin’s long-term potential? Clearly not. The utility of this comparison only serves as additional context for the current expectation that digital gold will gradually but steadily absorb the market capitalization of physical gold.
However, Bitcoin is as volatile as it is valuable. Even in January, bitcoin mining companies are roaring as the bitcoin price recovers. Now all the miners hope that last year was the “darkest” and soon it will be the “dawn”.
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.
