Why Marathon Digital, Riot Platforms, and Microstrategy Plunged Today

The impressive volatility we’ve seen in many top cryptocurrencies to kick off the year has been noted by many investors. However, results have been mixed for crypto-adjacent companies, with today’s moves in Marathon Digital (MARA -15.27%), Riot Platforms (RIOT -10.39%), and Microstrategy (MSTR -9.45%) reflecting a 7% downside move in Bitcoin (BTC -9.64%), which tends to drive the price action of these companies, given their large Bitcoin holdings. Notably, as of early afternoon trading, Bitcoin has plunged through the $44,000 level, generating significant long liquidations for traders and suggesting momentum is not on the side of investors right now.

As of 3 p.m. ET, shares of Marathon Digital, Riot Platforms, and Microstrategy dropped 15.1%, 9.7%, and 9.9%, respectively, over the past 24 hours. While lower Bitcoin prices do directly affect the valuations of these companies, there’s more at play with these stocks today.

Let’s dive into what’s driving this big downside move in these crypto-adjacent companies today.

The crypto-investing picture is changing

Undoubtedly, the biggest news affecting the crypto sector this week has been the approval of spot Bitcoin ETFs. These exchange-traded funds began trading on Thursday, providing new publicly traded options for investors looking to gain direct exposure to Bitcoin. Presumably, much of the demand for Bitcoin mining stocks was generated from investors who preferred the liquidity and publicly traded nature of these companies. With the rise of these ETFs, it’s likely many retail and institutional traders have repositioned their portfolios away from Bitcoin miners and into Bitcoin ETFs.

Fund flows will be an important story to watch, to be sure. It’s expected that around $100 billion of capital could flow into Bitcoin ETFs. That’s a large sum that has to come from somewhere.

Additionally, declining fees among Bitcoin ETF issuers has made these ETFs an attractive, low-cost option for those seeking exposure to the space. Instead of investing in higher-beta Bitcoin miners (their stock prices tend to move disproportionately to the upside and downside, based on Bitcoin swings), investors can gain direct exposure to what they’re after — Bitcoin. That’s a more attractive proposition for many investors concerned about capital preservation in this current climate.

What can change the narrative around these Bitcoin stocks?

It’s certainly the case that Bitcoin ETFs, as the new investment vehicle on the block, will continue to garner outsized interest from investors. To a certain extent, a sell-off among crypto-adjacent stocks may have already been anticipated by the market, considering the poor price performance of these companies prior to the approval of these ETFs on Wednesday. Accordingly, there’s some strong near-term price pressures that may manifest for some time.

Additionally, if it’s the case that these ETF approvals turn out to be a “sell the news” event, and Bitcoin prices trend lower, that’s not good for Bitcoin miners and companies like Microstrategy that really act as a vehicle to hold Bitcoin. With a halving event set to materialize in a few months, mining new Bitcoin will become more expensive. As a result, margin pressures and other factors are also at play.

In a word, these Bitcoin-adjacent stocks present a much more messy and potentially higher-volatility picture than owning Bitcoin ETFs directly. I think that while this sell-off in crypto stocks may be overdone, it can also be true that this selling pressure lasts longer than many think is possible. Thus, I’m going to remain on the sidelines for now when it comes to these specific stocks.