Data shows almost all major public crypto companies have underperformed Bitcoin this year, with mining companies taking a particularly hard hit.
Most Public Mining Companies Down 90% Or More By 2022
According to a year-end report from Arcane Research, 2022 is a very challenging year for public companies in the crypto sector. The chart below shows the drawdowns in the value of some of the big players in the market, as well as Bitcoin, over the past twelve months:
The deep red performance of the public companies in the digital asset sector | Source: Arcane Research's 2022 - Year in Review
As the chart shows, Bitcoin has done very well this year, seeing a negative return of around 65%, but the big public crypto companies have done worse. Even Microstrategy, a company whose stock’s main attraction is exposure to BTC through its large reserves, has not been able to perform as well as its assets and is following a deeper year-to-date drawdown of 74%.
The market capitalization of the popular crypto exchange Coinbase has fallen by 87% this year, which has caused the company to be worth less than the meme coin Dogecoin. The worst performer on the list is Scientific Core, recording a 99% drawdown. Inti Scientific is one of the largest Bitcoin mining companies, but due to such huge losses, the company had to file for Chapter 11 bankruptcy earlier this month.
Except for Core, other BTC miners have also experienced major drawdowns this year, with most being 90% or more underwater for the period. But why do mining companies underperform? The explanation behind it is multifold.
“Just like how crypto lenders are encouraged to prioritize short-term growth over long-term sound business decisions to attract private capital, public miners are incentivized to take on debt and quickly expand their hashrate share to attract more capital,” the report explains.
But three factors mean the company’s bets are off. First, interest rates are set to rise this year. Second, a bear market means that the price of Bitcoin continues to fall, which causes the value of miners’ rewards to become lower as well.
And finally, the third nail in the coffin is rising energy prices, which result in very little or no profit for miners as they have to pay electricity bills to keep their facilities running. All these factors caused the common miners to collapse under the weight of their short-term decisions.
For 2023, Arcane Research’s prediction for this public crypto company is that there will be a new Chapter 11 bankruptcy filed that year.
The price of BTC
At the time of writing, Bitcoin is trading around $16,500, down 2% over the past week.
Looks like BTC has gone downhill in recent days | Source: BTCUSD on TradingView
Featured images from Becca at Unsplash.com, charts from TradingView.com, Arcane Research