Bitcoin (CRYPTO: BTC), the world’s most valuable cryptocurrency by market cap, hit its lowest price in a week on Wednesday. According to CoinDesk, the price has dropped about 4% in the last 24 hours at the time of this writing. The reason for Bitcoin’s fall is not clear. But when it falls, it affects many cryptocurrency stocks.
Among them there are companies that are engaged in bitcoin mining. They include Marathon Digital Holdings (NASDAQ: MARA), Riot blockchain (NASDAQ: RIOT), and The9 Limited (NASDAQ: NCTY)… The three stocks ended today’s session with 12%, 11% and 15% losses, respectively.
By comparison, the price of bitcoin has grown by about eight times compared to last year, and in 2021 it almost doubled. This is a colossal rise in prices, and therefore it is not surprising that sometimes it cools down a little, as it is today.
The rise in bitcoin prices has been steadily appealing to the mining industry. Cryptocurrency miners have computers dedicated to verifying transactions on blockchain networks. The more computing power (the so-called hashing rate) a bitcoin miner provides, the higher the chances of the miner first solving a complex math problem and getting paid in bitcoins for their services.
When bitcoin payouts are more valuable (as they are now), there is more incentive for miners to mine as much as they can – the numbers make sense. This is why Riot Blockchain announced today that it has acquired 42,000 S19j Antminer miners. These new mining machines are almost double Riot Blockchain has a hash rate of 7.7 exaheshes per second (EH / s) when they are running.
Today’s announcement from Riot Blockchain reflects what other Bitcoin miners have done in recent days. For example, Marathon Digital’s current hash rate is less than one EH / s, which is a fraction of the Riot Blockchain. But on Monday, the company unveiled plans to continuously roll out new mining machines and bring the hash rate to nearly 10.4 EH / s by the end of March 2022.
Likewise, The9 recently announced a hash increase. Its current pace is difficult to pinpoint; Over the past two months, the company announced, but did not update, how many mining machines are already in operation. However, it currently appears to be less than one EH / s, just like Marathon Digital.
On March 19, The9 announced that it will acquire 24,000 Antminer miners, which will increase its hashrate by almost 2.2 EH / s. But they won’t be delivered until November, so it will take time to significantly improve the company’s business results.
As such, Marathon Digital, Riot Blockchain, and The9 contribute to the overall hash rate of bitcoins and receive in return in bitcoins. They then generate income by selling bitcoins for cash of their choice. Consequently, their income potential declines when Bitcoin falls. This is why the shares of these cryptocurrencies fell today.
Right or wrong, the market seems to be more optimistic about The9’s long-term prospects than Marathon Digital or Riot Blockchain. Perhaps this is because it is not only mining bitcoin. For example, he also extracts Filecoin and is in the video game business. However, this company generated $ 96,000 in annual revenue in 2020. Yes, I said a thousand. That’s a paltry income for a company with a market cap of over $ 230 million.
In terms of price-to-sales ratios, I’m not sure any of these stock valuations make sense – they are all expensive. But beyond the ratings, investors need to keep two things in mind. First, these bitcoin miners need the bitcoin price to continue to rise if they are going to be long-term winners. But predicting the future price of cryptocurrencies is a different matter than predicting stocks. The question is, will the demand for bitcoins continue to exceed the supply?
Second, if the price of bitcoin continues to rise, expect the overall network hashrate to continue to rise as miners continue to increase their computing power. These statistics can be publicly tracked on sites such as Blockchain.com.
Marathon Digital, Riot Blockchain, and The9 will have to at least keep their hash rates growing at the same rate as the network as a whole if they are going to continue to generate the same bitcoin payouts.
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