Digital gold mining companies face a more severe drawdown than their legacy counterparts in 2022.
The narrative citing Bitcoin’s popularity as “digital gold” begs for comparison with the actual yellow metal. But since the advent of Bitcoin, the comparative perspective of the mining sector underlying the two assets has often been lost.
In May 2022, this author published data on the gold/bitcoin mining contrast as digital gold producers underperformed ore miners. Now, the time seems right to provide a follow-up summary of some recent market data for bitcoin and gold miners.
Last year’s unpredictable economic turmoil and the financial brutality of bear markets have highlighted some important idiosyncrasies between gold and its blockchain-based counterparts. In the following paragraphs, the data will highlight the similarities and differences between the two “mining” industries. In a way that Twitter doesn’t often reveal out loud, gold and bitcoin miners have a lot in common.
Inside Bitcoin Market Data And Gold Mining
Bitcoin bulls should sit down before continuing to read this section. Peter Schiff will be euphoric.
2022 is not an easy year for anyone, but bitcoin miners are experiencing very difficult market conditions. Compared to bitcoin miners, gold mining stocks have had a fairly easy year. A selected group of public gold and bitcoin mining companies is shown in the bar chart below. Yearly performance based on percentages from 2022 for all companies is shown in the chart.
Measured in percentage drops from all-time highs, gold wins again. (Go ahead and laugh, Schiff.) At the time of writing, gold is about 7% off its record high — roughly the same price it was in May when the author last wrote about gold miners and bitcoin. Meanwhile, digital gold is trading more than 65% lower than its high point, reached at the end of 2021.
But bitcoin beating gold is not the historical norm. Throughout 2021, bitcoin and mining companies have a strong and prolonged uptrend. Gold miners and gold lagged very much at the same time.
And honey badgers should not be counted.
Brutality Mining Bear Market
Regardless of how gold miners performed, last year was arguably the most difficult bear market period in Bitcoin history. So, underperforming gold (or any other asset) is no surprise.
Below is a brief synopsis of last year’s surviving bitcoin miners that led to, among others, yellow-metal-yellow ore miners.
For public mining companies, news of a potential delisting from the stock exchange is very common. In August 2022, BIT Mining received a notification from the New York Stock Exchange (NYSE) regarding its potential delisting due to minimum price standards. In the same month, Mawson received notice of a potential delisting for the same reason. In October 2022, Digithost received a similar notice of possible delisting, as reported by The Block. Greenidge Generation received notice of potential delisting in mid-December 2022. Bitfarms received the same notice a day after Greenidge for the same reason. And Kanaan, a Nasdaq-listed maker of mining hardware, has also received notice of possible delisting for employing auditors whose work cannot be inspected by US audit regulators.
Mining executives are also leaving in large numbers – voluntarily or otherwise. Dave Perrill, the former CEO of Compute North, resigned in September 2022. Jeffrey Kirt, who led Greenidge Generation from 2021, abruptly resigned in early October 2022. Whitney Gibbs, who founded Compass Mining, also abruptly resigned in the middle ” setbacks and disappointments” in July 2022. Emiliano Grodzki, who founded Bitfarms in 2017, announced his resignation three days before the end of 2022.
Mining bankruptcies made headlines every month last year. Compute North filed for bankruptcy in September 2022. Seven months before bankruptcy, the company generated $385 million. Core Scientific, the largest publicly traded bitcoin mining company, also filed for bankruptcy days before Christmas. Celsius, a prominent crypto lending platform, also saw its sizable mining unit go bankrupt just months after the team announced plans to go public. BlockFi is a famous crypto lending service that maintains a sizable mining unit and has filed for bankruptcy. Bloomberg reports that Marathon announced more than $80 million in exposure to now-bankrupt Compute North. Argo accidentally sent a fully prepared bankruptcy filing on its website before its $100 million deal with mining team Galaxy Digital helped Argo avoid “real” bankruptcy.
And many mining lawsuits were filed. Blockware is sued. Iris Energy is facing a class-action lawsuit. Washington County Tennessee is suing BrightRidge, a local mining utility. Riot sued North Data. Whinstone, a subsidiary of Riot’s flagship mining company, is suing Japan’s Internet CMO in a four-year dispute. And Core Scientific was sued.
Suffice it to say, any mining team that survived last year will survive no matter what.
Darkest Before the Dawn?
Given the market conditions in the bitcoin mining sector last year, it will come as a surprise to investors if bitcoin miners outperform their gold counterparts. But does one year of underperformance affect Bitcoin’s long-term potential? Clearly not. The utility of this comparison only serves as additional context for the ongoing expectation that digital gold will gradually but steadily absorb the market capitalization of physical gold.
Bitcoin is as volatile as it is valuable, however. Even in January, bitcoin mining companies roared back as the price of bitcoin itself rallied. Now all the miners hope that the last year was the “darkest” and it will be the “dawn”.
This is a guest post by Zack Voell. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.