Cmining companies CRYPTOCURRENCY we have a number of headwinds to fight right now. Fool.com contributor Chris MacDonald and The Motley Fool's Eric Bleeker discuss two of the main catalysts that plunge crypto miners into the December 15 edition of "The Crypto Show" in Go backstage.
10 stocks we like more than Argo Blockchain plc
When our award-winning team of analysts has advice on stocks, it can help to listen to it. After all, the newsletter they have published for over a decade, Motley Fool Stock Advisor, has tripled the market. *
They simply revealed what they think the top ten actions for investors to buy right now ... and Argo Blockchain plc wasn't one of them! That's right, they think these 10 stocks are even better buys.
* Stock Advisor returns on December 16, 2021
Eric Bleeker: Let's move on to the correction of the crypto miner. Whoever made this slide should be ashamed of themselves, how tiny these names are. That was me.
We have Argo AI, or Argo Blockchain (NASDAQ: ARBK), Excuse me. Argo AI is an autonomous vehicle company. It was down 37 percent. Crypto mining (NASDAQ: CIFR) 63 percent, Marathon digital entries (NASDAQ: MARA). Actually, flat. Riot Blockchain (NASDAQ: RIOT) 18 percent, and this is from the beginning of September.
He noted that those gains have been particularly accentuated. If you look at your screen, in early November around this time we've been seeing a general reduction in risk in the markets.
It's worth noting that some of the gains, especially in something like Cipher Mining, extend well beyond the drops in Bitcoin (CRYPTO: BTC) itself. I was looking online, and there is an expert who seems to have this story covered well. He has a "crypto crash on steroids." "Cryptocurrency miners sink more than 9%, the US and China finally agree on something, and it's not good for cryptocurrency miners."
Well luckily we have this expert on the show today. Chris, you've been writing a lot about this story. What's going on in cryptocurrency mining?
I should also point out quickly before telling you that cryptocurrency mining is a space that has attracted significant attention. These miners have been mining bitcoins and, in general, most of the time, they have kept them on their balance sheet. It has been a way for many people to play Bitcoin through the public market. I know we haven't covered miners as much on the show.
Chris, what is happening in space? Why the sudden collapse?
Chris MacDonald: I think that with the issue of de-risking the markets, the cryptocurrency mining sector is interesting to watch.
These two articles talk about two different things. The first is more about how crypto miners react to price volatility with, say, Bitcoin. Then the second is more about the environmental concerns around the cryptocurrency sector. Those are the two main drivers that I am considering at the moment as some of the main reasons why the cryptocurrency mining sector is down.
And I'll try not to get too on a tangent on this.
Eric Bleeker: Please do it.
Chris MacDonald: [laughs] I find the cryptocurrency mining sector very interesting. When I think of crypto miners, it's actually a misnomer. Crypto miners are more validators on a blockchain. They help validate and secure transactions and add new blocks to a given chain. But they are called miners because they are rewarded for doing that.
In a way, it is interesting to think of a cryptocurrency miner as you would a gold miner. Bitcoin is often referred to as digital gold. They have high upfront fixed costs, so the real mining machines, the cooling systems, the real estate, the infrastructure to do it, similar to a miner who needs to invest in his trucks and his drills and whatever.
So your profitability ultimately depends on the price of Bitcoin, or for gold miners, only on the price of gold. These companies are very sensitive to price movements. What that means is that if the price of gold or the price of Bitcoin goes up, that directly impacts the results of these companies because a large part of their costs are fixed. That means that essentially when the price of Bitcoin is fluctuating and there is some volatility, these miners can see higher volatility than the underlying assets.
If you are in a risk reduction environment where you say, "Well, I don't like how volatile the price of Bitcoin is," if Bitcoin sells X%, 5%, a Bitcoin miner could sell 10%. But in a bull market, it is the other way around. That's more what I meant by leverage when you think of crypto miners versus actual underlying cryptocurrencies. These are technically a bit more volatile and riskier, but they are higher bullish options for investors to consider. Right now, in this current market, they are taking a hard hit on that front.
Then from an environmental standpoint, most investors may or may not have read about China's bans on cryptocurrency mining. That spurred a lot of activity to countries like Kazakhstan or Canada or the US Recently, there was a new story last week that Kazakhstan has become less friendly to crypto miners. What is happening is that if you are a crypto miner and you are setting up an operation in a certain country and you are forced to move out of that country for whatever reason, obviously that is going to have a huge impact on the sector. .
There are some tricky dynamics there with the terahash rate, and the US-based crypto miners have benefited. Companies like Marathon that you noticed didn't go down that much. They benefit from that environment because less computing power means they can reap more rewards. It is quite a complex situation.
But now, as I understand it, the United States accounts for 35 percent of the world's Bitcoin production, and that trend is likely to increase. What we have seen here, there is another article I wrote about US regulators who might crack down. [Sen.] Elizabeth Warren has requested information from crypto miners about how much power consumption is being used, the potential for disruption of power grids, and also the environmental impact.
For countries that are trying to meet green goals, crypto miners absorb a lot of power from the system. Those goals may be difficult to achieve when those electrical resources are being used that way, and a lot of electricity is still not green. There is a real concern among environmentally conscious investors, and there is concern among those who are concerned about volatility in this segment.
There are those two important aspects that I am looking at right now, but this is a sector that seems to be really under pressure at the moment, so I will follow closely.
Chris macdonald has no position in any of the stocks mentioned. The Motley Fool owns and recommends Bitcoin. The Motley Fool has a disclosure policy.
Points of view and opinions expressed in this document are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
