Why Bitcoin Mining Stocks Like Marathon, Cleanspark, and Riot Crashed Last Month

What happened

Shares of many Bitcoin (BTC -1.20%) mining stocks crashed hard in September 2023, according to data from S&P Global Market Intelligence. Riot Platforms (RIOT 2.52%) lost 17.8%, Cleanspark (CLSK -1.33%) stock fell 22.7%, and Marathon Digital‘s (MARA 3.46%) shares dropped 33.4%.

These sudden price drops are not unheard of in this volatile market sector, but they are usually caused by a large price drop in Bitcoin. The largest cryptocurrency did trade lower last month, but only by 1.4%. So why did the crypto miners take such dramatic haircuts in a fairly quiet month for Bitcoin itself?

So what

First and foremost, the crypto miners were soaring sky-high at the start of September. By the time the calendar page flipped, both Marathon and Riot had more than tripled their share prices year-to-date. The environment-focused Cleanspark trailed the larger miners, but was still up by 142% on Aug. 31.

It didn’t take much of a Bitcoin correction to drive these stocks far lower. Gently pumping the brakes on Bitcoin’s value growth was enough to trigger these significant drops.

Now what

The crypto market had turned sour in 2022, started a sharp rebound in early 2023, and lost steam again in recent weeks. These swings are a close match for the bullish and bearish signs in the global economy, which can’t seem to get out of its inflation doldrums after two years of price-control government policies.

So investors are unconvinced that high-risk investments will pay off in the long run, especially if the company behind each stock must take new loans at lofty interest rates to finance its operations.

This risk-averse attitude is bad news for Bitcoin and even worse for the crypto-mining experts. That’s why Cleanspark, Riot, and Marathon tend to exaggerate Bitcoin’s market moves, both on a day-to-day basis and in the long run.

Now, the miners were not completely quiet last month.

• Riot produced 333 new Bitcoin tokens in August but also sold 300 to fund its operations. The company also explained how it lowered Bitcoin production during the heat wave in August, supplying 84,000 megawatts of sorely needed energy to the struggling Texas infrastructure in exchange for a $7 million payment.
• Cleanspark generated 659 tokens and sold 43 for a net increase of 616 Bitcoins. Construction is now underway on a new Bitcoin mining facility in Georgia.
• Marathon mined 1,062 digital coins without selling any, and also issued 31.7 million new shares to cancel $417 million of its convertible notes debt.

Bitcoin mining companies may look similar to the uninitiated, but each one runs its mining process on distinctly different principles. Riot produces its own power and sells some in a separate revenue stream. Cleanspark bends over backward to ensure environmentally friendly mining operations, which may come in handy if the federal or state government imposes green energy requirements at some point. And Marathon’s epic scale is hard to match, but it’s also the only company in this trio that carries a significant debt balance.

So, if you want to invest in one of these amplified Bitcoin vehicles during a modest downturn, you could either do a deep dive and figure out which one’s the best fit for your strategy, or grab a few shares of each to form a more diverse miner portfolio.

But remember, the potential for soaring gains comes with exposure to massive risks, too. September’s sudden price drops served as a reminder of that fact — in a steady Bitcoin environment, no less. Bitcoin mining stocks won’t suit every investors’ level of risk tolerance.