Investors in bitcoin mining stocks are closely watching the price of the cryptocurrency after the SEC’s move to allow publicly traded bitcoin ETFs became a news selling event. After the ETFs received regulatory approval last week, the cryptocurrency briefly reached $49,000. However, as the week went on, Bitcoin erased its previous gains and posted a modest weekly loss of 0.01%. Cryptocurrency mining companies are now feeling the pressure from the recent Bitcoin sell-off – and this is evident in the significant declines that Marathon Digital and Riot Platforms have seen for a week now, with both losing more than 20%. First, hash rate — the amount of computing power the Bitcoin network uses to process transactions — is hitting all-time highs almost every week and hurting miners’ margins, according to Reginald Smith, an analyst at JPMorgan. He said the network’s hash rate has increased by more than 30% over the past four months, rising alongside Bitcoin’s 157% rise in 2023. Second, investors are keeping an eye on the price of Bitcoin in the wake of ETFs’ debut because if crypto doesn’t happen to range… Ranging between $50,000 and $55,000 soon, small miners may not have enough capital to grow and may have difficulty maintaining their operations. “Miners at the lower end of the cost curve with limited amounts of debt and plenty of liquidity between bitcoin and cash on their balance sheets will be the best performers in 2024,” Compass analyst Chase White said. white. “But this can be a difficult time in the middle of the year as miners play a prisoner’s dilemma game about who needs to turn off their machines and who doesn’t.” “The older, less efficient miners are much less profitable, but they are still profitable enough to stay online, which hurts everyone’s margin,” he said. “If (bitcoin price) reaches $45,000 or less, only the newest, most efficient miners with the lowest cost will be able to stay online.” Dynamic in Focus: This dynamic between the price of Bitcoin and mining companies comes into focus in anticipation of the Bitcoin halving, when the reward for mining the main cryptocurrency is halved, as designed in Bitcoin’s code, to reduce its supply. Because of supply cuts, halvings historically set the stage for significant price increases in the following six to nine months. However, reducing the reward also means that miners’ revenues are affected. Overall, analysts are fairly optimistic that Bitcoin will rise as expected due to three main catalysts: ETFs, the halving, and potential interest rate cuts. “The ETF catalyst, and a little later in the year, the possibility of lower interest rates, could see bitcoin run much faster than the global hash rate, which could mitigate a lot of this issue,” White said. . “But the price would have to rise above $50,000 for that to be the case, and we think we can get there.” Compass White’s year-end price target for Bitcoin is $75,000. Private miners will likely suffer the most because they have more difficult access to capital than publicly traded miners, who can sell shares on market programs, White said. He named Riot Platforms, Iris Energy, Cipher Mining, and Bitfarms among his picks. JPMorgan’s top pick is Iris Energy. The company is neutral on Cipher, CleanSpark and Riot, although Smith said he is increasingly constructive with Riot, which is trading more actively and he views it as a long-term winner. Last week, shares of Iris Energy and Cipher fell more than 16% each. In a note earlier in the week, Smith suggested there could be weakness following ETF approval – likely driven by technical selling pressure, rather than fundamental mining economics, given that institutional investors now have other ways to express their view on Bitcoin with… Introducing ETFs. . “We will view any sell-off (in mining stocks) as a buying opportunity, as the ETF does not directly impact mining economics or change competitive dynamics, and we remain optimistic about Bitcoin miners and Bitcoin in 2024,” he wrote.