Bitcoin mining stocks rebound sharply despite a 70% drop in BTC miners’ revenue

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Bitcoin (BTC) mining companies have suffered losses in 2022 due to the crypto bear market. Nonetheless, their shares collectively saw a sharp rally on 6 July, raising hopes that investors have started buying dips.

One of the intraday winners was Bitfarms (TSE:BITF), which closed up more than 24% at $1.29.

Similarly, Marathon Digital Asset Holdings (NASDAQ: MARA), Core Scientific (NASDAQ: CORZ), and Cathedra Bitcoin (CVE: CBIT) gained over/over 12.5%, 16.22%, and 15%, respectively.

MARA, CORZ, BITF, and CBIT daily price charts. Source: TradingView

Bitcoin Miners’ Revenue Falls 70% From Peak

It’s been a bad year for mining stocks. A nearly 60% year-on-year drop in the BTC price and an increase in “mining difficulty” reduced daily revenue for miners by more than 70% from a November 2021 peak of $62 million.

Bitcoin daily miner revenue vs difficulty. Source: CoinMetrics/Arcane Research

The result is bad for all mining stocks, including those mentioned above. For example, BITF is still down 86% from its peak in pre-market trading on July 6, despite a 24% rally in the previous session.

Similarly, MARA, CORZ, and CBIT are trading 80%-93% down from their all-time highs in November 2021, showing a far deeper decline than bitcoin, whose price fell 67% over the same time frame. Has been.

Mining stocks vs BTC/USD (blue) daily price chart. Source: TradingView

“Small cover” to trap bulls?

However, there is a risk of further downside in bitcoin mining stocks. Potentially protracted bear market led by macro risks.

Thus, according to Balmy Investor, a pseudonymous analyst, the sharp rally in bitcoin mining stocks could be due to “short covering” or investors buying dips.

Covering shorts involves buying back a borrowed underlying asset to close a short position at a profit or loss. This usually leads to repeated rebounds, especially during a bear market, where bulls are at risk of being trapped.

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For example, the MARA stock chart below shows several cases of short-term upside runs during an overall bearish cycle.

MARA/USD daily price chart. Source: TradingView

Meanwhile, “oversold” bounces are typically triggered when an asset’s relative strength index (RSI) drops below 30, which many traditional technical analysts consider a buy signal.

On July 6, RSI readings for Marathon Digital Asset Holdings, Core Scientific, Cathedra Bitcoin and Bitfarms were below 30.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, so you should do your own research when making a decision.