After Incredible December Gains, Traders Cashed Out of Bitcoin Mining Stocks Today

What happened

Bitcoin is the most popular cryptocurrency in the world and bitcoin mining operations keep the tokens flowing. Some miners have chosen to list their companies on the stock market, allowing investors a chance to own a piece of these companies. And December 2020 is a month bitcoin mining investors should remember for a while. Just consider some of these returns (through Dec. 23):

Those are some of the best one-month returns investors will ever see. However, all of these stocks pulled back on Wednesday, and some even dropped by double-digit percentages. Why are bitcoin mining stocks so volatile and what should investors expect going forward?

Image source: Getty Images.

So what

Today, HIVE Blockchain Technologies gave a business update that highlights a general truth for bitcoin miners lately. The company primarily mines Ether, the native token to the Ethereum blockchain. But it also mines bitcoin. Since Oct. 1, HIVE has mined more than 19,000 Ether and 140 bitcoin. Now consider what’s happened with the price of bitcoin and Ether since Oct. 1.

Bitcoin Price data by YCharts

Over the last two months alone, the price of bitcoin has more than doubled, and Ether is up 80%. Every miner has a different break-even price for mining cryptocurrencies based on the unique cost structure of each company. However, the cost to mine bitcoin and Ether doesn’t fluctuate with token prices. Although HIVE didn’t provide financials in its business update, bitcoin miners have a higher chance at profits as cryptocurrency prices rise. 

The chance at higher bitcoin profits has attracted the attention of stock traders, not investors. Long-term investors focus on business fundamentals and buy stocks with an investing horizon long enough to let a bullish thesis play out. By contrast, stock traders focus on stock chart patterns to buy and sell quickly, often during the same day.

Rising cryptocurrency prices are part of the reason these stocks have gone up in December. But here’s why I believe traders have also played a role in driving bitcoin miner stocks higher over the last few months. Consider the trading volume for Amazon.com (one of the largest companies in the world) and contrast that with the volumes for Marathon, CleanSpark, HIVE, and Riot Blockchain:

MARA Volume data by YCharts

The bitcoin miners are all small-cap stocks; their market caps are all less than $1 billion. Nevertheless, people are buying and selling these more than mega-cap stocks. Consider Riot Blockchain is currently trading hands almost 30 times faster than Amazon!

This virtually guarantees the vast majority of shareholders in these bitcoin mining stocks aren’t in it for the long haul. They’re simply hoping to make a quick profit by offloading shares on a greater fool.

Regular people like you and me…