Shares of Riot Platforms (RIOT -4.29%) rose 59.8% in March 2023, according to data from S&P Global Market Intelligence. Dramatic price drops or bloodcurdling crashes are common events for this volatile crypto-mining stock. But even for veteran Riot observers and shareholders, last month’s surge was a market move of unusual size.
Riot’s moves led the charge across the crypto-mining industry at large. Here’s what happened.
The company shared various business reports near the start of March, including February’s Bitcoin (BTC -0.08%) mining production and the full financial results of the fourth quarter and full fiscal year 2022. Market makers quickly glanced at these documents, brushed them off, and moved on; Riot’s stock barely moved on the news.
From there, the stock followed along as Bitcoin’s price gains picked up speed, with a week-long pause around the collapse of a few banks with close ties to the cryptocurrency sector. Bitcoin’s price chart pumped the brakes, and Riot followed suit. So did fellow crypto-mining companies such as Marathon Digital (MARA -6.82%) and Hut 8 Mining (HUT -6.18%). Their charting lines were nearly identical for a couple of weeks, bundled around Bitcoin’s pace-setting price trend:
The bundle separated a bit in the last 10 days of March. Bitcoin held fairly steady from March 21 onward, and the other two crypto-mining experts fell back slightly. But Riot Platforms gained 10.1% over the same period, catching fire while its peers ran out of steam. Marathon closed the month 22.8% higher, and Hut 8 recorded a 12.1% gain. The Bitcoin inspiration stopped at a 19.2% increase, priced at $28,041 per digital coin.
Sure, it makes sense when crypto-mining stocks move in tandem with the all-important Bitcoin price. But why did Riot amplify last month’s Bitcoin action much more than Hut 8 or Marathon did?
That’s a lesson in short-term stock-price fluctuations versus long-term market trends. If you measure the price changes of Marathon, Riot, and Hut 8 from the end of 2021 to the start of March 2023, you’ll find that their price drops stayed within a range of 72% and 79%. They separated from time to time along the way, similar to Riot’s industry-leading jump last month, but always came back together again.
These three companies run similar but subtly different business plans. Riot and Hut 8 focus exclusively on Bitcoin mining, while Marathon also offers data-center hosting services. Riot also stands out due to its full stack of in-house power generation and mining-facility operations, while the others rely on third parties for these functions.
But in the end, it all comes down to what Bitcoin is doing and where its price is going. Times are good right now, and I do believe that cryptocurrencies will become more important and valuable over time, and the digital mining stocks reflect that upswing. They are also exposed to massive risks when the crypto market cools down. Since they have fixed business expenses measured in U.S. dollars, crypto miners face serious financial risks when the crypto winter stays cold for too long.
So it’s amazing to see Riot soaring 60% higher in March and 74% last July, but it also lost more than 25% in five of the last 12 months, and so did Marathon and Hut 8. Bitcoin only recorded one month with more than 25% price drops over the same period.
I know what you’re thinking. These stocks are more volatile than Bitcoin? Inconceivable!
That’s a great word, but I do not think it means what you think it means. Bitcoin miners add extra layers of financial risk on top of the inherently unpredictable foundation of Bitcoin’s short-term price changes. Of course, that results in even more volatility and investor risk. That gamble might serve investors well in the long run, but I don’t dare to invest cold, hard cash in that idea. In my view, Bitcoin itself has plenty of price swings and long-term promise, and I’m not comfortable with the mining specialists’ even wilder risk profiles.