Bitcoin mining stocks usually follow BTC’s price because it directly influences the company's earnings. These stocks were beaten down heavily in the last quarter of 2022, especially in the month of December. The downturn after FTX's collapse worsened with the bankruptcy filings of the largest U.S.-based Bitcoin mining company, Core Scientific.
During this time, other mining stocks, like Marathon Digital Holdings (MARA) in the chart below, exhibited a weak correlation with Bitcoin’s price, suggesting that December’s downturn was probably overblown.
MARA/USD price chart with MARA-BTC Correlation Coefficient index. Source: TradingView
The negative trend reversed at the start of 2023 as most mining stocks posted impressive gains. The Hashrate Index mining stock index, which tracks the average price of publicly listed mining and hardware manufacturing companies, increased by 62.5% year-to-date. The positive price spike also restored the strong correlation between BTC price and mining stocks.
However, the mining industry remains under stress, with low-profit levels expected for prolonged periods. Since Q2 2022, mining companies have funded operations selling BTC from reserves, selling newly mined BTC, raising debt and issuing new shares. Unless Bitcoin’s price consolidates above $25,000, the industry will likely witness a few takeover attempts or further treasury sales to pay off debt.
Some mining companies are operating at a loss
Currently, the top mining companies' price-to-earnings (PE) ratio is negative, suggesting that they're operating at a net loss, making their stock prices vulnerable to steep downturns.