Deepening Fears of U.S. Recession Lead to Drop in Crypto Mining Stocks
2022.05.10 11:41
Deepening Fears of U.S. Recession Lead to Drop in Crypto Mining Stocks
- Major companies in the crypto mining sector have taken a nosedive alongside cryptocurrencies.
- Margins have also been reduced as a result of increased energy prices.
- The return on shares for companies such as Marathon Digital Holdings have been falling.
Shares in major crypto mining companies continued to fall sharply on Monday, in tandem with the stock market on the New York Stock Exchange, Bloomberg reported.
The growing fears related to the tightening of the Federal Reserve’s monetary policy, which could lead the U.S. economy into a recession, have hit the crypto market hard.
Marathon Digital Holdings, the largest in the U.S. by market valuation, plunged 15% ($12.78), causing the company’s losses to increase to approximately 60%.
Likewise, shares of Core Scientific Inc. and Riot Blockchain (NASDAQ:RIOT) Inc. plummeted on the Nasdaq to end the day with losses of 14.60% and 18.23% respectively, according to Yahoo Finance.
Shares in mining companies have fallen alongside Bitcoin (BTC) from their all-time highs. These crypto miners, which have high volumes of the world’s largest cryptocurrency on their balance sheets, have hit yearly lows.
“A Broad Environment of Risk Aversion”
Valkyrie Investments Chief Investment Officer Steven McClurg commented that “crypto and equity markets are largely selling off in tandem due to a broad risk-off environment where many investors are moving to cash.”
He added that “the correlation between the two asset classes has grown more pronounced in recent months because the number of publicly traded companies involved in blockchain and digital assets continues to grow, and is not likely to reverse course.”
As of 2:58 PM (ET), following a sell-off of risk assets over the weekend, BTC had fallen 10.40% and was trading at $30,924, according to CoinMarketCap. Shares in technology companies similarly deteriorated in the wake of the Fed’s announcement that interest rates would be raised to try to bring runaway inflation under control.
Major indices fell sharply from their recorded peak levels in November. The tech-heavy Nasdaq 100 was down 25%, while the S&P 500 lost approximately 14%.
Risk aversion has hit Bitcoin and the wider crypto market hard. So far in 2022, the crypto market has displayed heavy volatile, with little sign of a return to last year’s highs.
In 2021, China’s ban on crypto mining caused the shares of crypto mining companies to hit record highs as competition was either entirely removed, or forced to relocate. However, recently these values have expereinced steep declines.
Miners Face Twice the Challenge
Miners’ profit margins have also been deteriorating, but not just because of the bear market. The costs associated with mining cryptocurrency have shot up due the sanctions imposed on Russia for the invasion of Ukraine and the subsequent rise in energy prices.
Other crypto mining stocks such as MicroStrategy and Coinbase (NASDAQ:COIN) Global have also been trading at a loss, and the market forecast for the coming months is anything but optimistic.
In McClurg’s opinion, in the short term “the markets will continue to sell off through the summer, especially if rate hikes continue through the June and July FOMC meetings, before staging a potential rally through the end of the year in a pattern that has largely established itself over the past decade”.
He further underlined that “one thing to watch is the yield curve, as an inversion would be a harbinger of further selloff. Recession is imminent.”
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