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.
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.
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.
“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.
Quick June overview. Working on the Q2 Report @hashrateindex,— balmy_investor ️ (@balmy_investor) 6 July 2022
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.
RELATED: Core Scientific Sold $167M Worth of Bitcoin Holdings in June
For example, the MARA stock chart below shows several cases of short-term upside runs during an overall bearish cycle.
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.
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