Bitcoin mining stocks outperform BTC in 2023.

Bitcoin mining companies outperformed Bitcoin by a huge margin amid the recent bullish price action in the top cryptocurrency.

The average year-to-date stock price gains in 2023 among the top nine public Bitcoin mining firms by market capitalization stood at 257.14%. The figure is almost three times higher than Bitcoin’s gain in the same period.

The higher gains represent the leveraged beta effect that mining stocks enjoy. Leveraged beta suggests that during Bitcoin upside, these stocks outperform, whereas when Bitcoin slumps, they face deeper downside risk.

Due to its high leveraged beta, Bitcoin’s price performance will remain a crucial factor in determining the direction of mining stocks.

The trends within the mining sector show that miners are positioning themselves for the long term by buying more machines. However, they have yet to exhibit accumulation levels that match previous bull markets, suggesting that the uptrend in the stocks could stall in the medium term.

Performance of listed Bitcoin mining stocks. Source: Cointelegraph

The public mining companies in the United States made aggressive moves in June, signaling long-term strength in the industry.

Hut 8 Mining (HUT8) merged with US Bitcoin Corp (USBTC), increasing its total hash rate to 9.8 EH/s, making it the third-largest public mining entity in the United States. However, it also borrowed $50 million from Coinbase for general corporate purposes.

Cleanspark (CLSK) invested $9.3 million to increase its hash rate by almost 1 EH/s.

At the same time, Riot Blockchain (RIOT) entered into a $170 million deal with mining hardware manufacturer MicroBT to nearly double its hash rate capacity by 2024 upon full deployment.

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Bitcoin holdings of public mining companies. Source: Mining Mag

Mining profits improve, but miners are selling

The one-hop supply metric from Coin Metrics, representing the holdings of wallets that received coins from mining pools, shows that these addresses have reduced their holdings to a near one-year low.

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Bitcoin miner one-hop supply. Source: Coin Metrics

Glassnode data also recorded a significant volume of miner coins transferred to exchanges. The exchange inflows surpassed even the levels seen during the bull market of 2021.

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Percentage of miner revenue sent to Exchanges. credit: tweet (Xweet) by glassnode.

Moreover, the miner holdings are still near a two-year low, which is likely due to low profitability for the most part of 2023

The network’s total hash rate reached a new all-time high at the start of June. However, it has been dropping amid heat waves in Texas. The dropping hash rate and increase in Bitcoin's price above $30,000 is contributing to increasing the profitability of running miners.

The production cost of the most used mining model, the Antminer S19, ranges from $20,000 to $25,000, depending on electricity cost.

Notably, companies with mining farms in Texas such as Riot can incur some losses due to the climate. However, it is likely that the companies would have taken steps to hedge the heat wave risks, as it is not the first time they've experienced heat waves.

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To Conclude:

Nevertheless, despite the improvement in profitability, miners are unloading Bitcoin, potentially a sign of future negative price action.

While revenue improved in June, miners have continued to spend on expansion and operation costs, which suggests that a crypto bull market has yet to start.

The expansion plans of companies and the decline in on-chain miner holdings project medium-term sideways price action or a potential correction in mining stocks if the BTC price drops.