Cryptocurrencies have had a wild few weeks. Here’s how the volatile price swings have affected investors, traders, miners, and DeFi companies.

Bitcoin mine
view of the Kizelovskaya State District Power Plant at the Gubakhinsky Coke and Chemical Works. Russian businessman Alexei Kolesnik has bought the Kizelovskaya State District Power Plant to create a data center and a bitcoin mining farm

  • Bitcoin, ethereum, and other cryptocurrencies have experienced a wild few weeks.
  • The price swings are nothing new for crypto, but with newfound mainstream acceptance, volatility presents issues.
  • Insider spoke with cryptocurrency experts to see how the recent “stress test” has affected the community.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

On April 11, 2021, the price of bitcoin rose as high as $63,729.50 as enthusiasm surrounding the crypto market swelled.

Coinbase, one of the largest cryptocurrency exchanges, was set to go public in just three days, and Tesla had said it would begin accepting bitcoin as a form of payment for its vehicles.

A month and a half later, bitcoin is trading below $40,000 per coin, Tesla is no longer accepting bitcoin, and Coinbase stock is down roughly 30% from its all-time highs.

For new entrants to the crypto world, this kind of volatility can be disturbing, but for old hands, it’s nothing new.

In fact, bitcoin experienced six pullbacks of more than 30% in 2017 alone, despite the price rising more than 1,000% that year.

Still, considering the rapid growth of new cryptocurrency holders and an increasing institutional interest in the space, swelling volatility can be an issue.

Below, Insider breaks down how cryptocurrencies’ wild few weeks have affected the industry.

From miners to the DeFi companies, the crypto community has been forced, once again, to navigate price swings. Here’s a look at how they made out according to the experts.

Traders and Investors

Some short-term traders and long-term investors were greatly impacted by bitcoin’s recent price swing, but for others, it was business as usual.

The majority of the pain dished out by falling prices in cryptocurrencies was felt by new entrants to the space looking to make a quick buck by trading but ended up sellig coins at a loss.

According to data from Glassnode, “there is no question that a large portion of the recent spending activity was driven by short-term holders, those owning coins purchased within the last 6-months.”

Insider spoke with Todd Jones, the chief investment officer of the wealth management firm Gratus Capital, to confirm Glassnode’s findings.

Jones said that none of his long-term focused clients have been selling their cryptocurrency and noted that much of the sell-off in bitcoin’s price was a result of traders’ “leverage unwinding.”

On-chain margin traders raced to exit their leveraged positions when cryptocurrencies faced their most recent bout of volatility, according to a May 19 Daily Gwei newsletter.

Ethereum gas fees (the fee required to successfully conduct a transaction on ethereum) surged to record highs as a result driving “gas wars amongst liquidators and arbitrageurs,” according to Delphi Digital.

“The price was falling so fast that people were getting scared for their on-chain leveraged positions and were willing to pay anything to get their transaction included in the next Ethereum block (presumably to close their positions),” ethereum developer Anthony Sassano speculated, per Coin Telegraph.

Bitcoin traders using up to 100-to-1 leverage also rushed to sell, furthering volatility in the asset.

This leverage unwinding added to cryptocurrencies’ woes. However, for long-term holders of ether and bitcoin, the price drop and rising gas fees weren’t relevant.

Essentially, the most recent bout of volatility hurt traders far more than long-term investors, who still believe their holdings will appreciate moving forward.

“Recent price volatility should not be very impactful to a long-term holder of BTC. It comes with the territory. Any asset that can go up 800% in a year also has the potential to collapse 90% (similar to the early days of AMZN). Price volatility goes hand in hand with speculative assets,” Todd Jones of Gratus Capital said.

In Jones’ view, now is a “good time to add” to cryptocurrency holdings as a part of a diversified portfolio.

Miners

Cryptocurrency mining, and in particular bitcoin mining, has become a multi-billion dollar business. Publicly traded miners like Riot Blockchain, Marathon Digital Holdings, and Hive Blockchain have expanded their operations amid a meteoric run for the crypto space.

However, like all mining operations, the value of the end product is a critical component to securing profitability.

Insider spoke with Phil McPherson, Riot Blockchain’s vice president of capital markets, to delve into how cryptocurrency price swings can affect miners.

McPherson said that when bitcoin’s price falls, miners could be forced to sell coins in order to continue their operations. The key is the mining cost per coin, which varies greatly depending on the company.

“Smaller miners with higher fixed costs and costs of goods would probably be hurt more,” McPherson said.

The VP added that his company is in a “unique position” due to its strong balance sheet. Riot ended the first quarter with $241 million of cash on hand and an average cost per coin mined of around $15,000, enabling them to keep all the bitcoin they mine and continue operations even in a down market for the digital asset.

“On a daily basis, we’re mining call it six or seven bitcoin a day, sometimes it’s higher, sometimes it’s lower, but we’re not selling that bitcoin, we’re stacking it,” McPherson said. “So the fact that we’re bullish long term, the price volatility hasn’t affected our business from a financial standpoint because we’re not selling it into this depressed market.”

McPherson noted that when bitcoin’s price falls, the global hash rate (the difficulty of mining the currency) falls as well, which is actually a benefit for miners who can remain in operation.

“From our perspective, the volatility in some ways has been good for market leaders like us,” McPherson added.

DeFi

Decentralized Finance, or DeFi, is a system that allows users access to financial products on a public, decentralized blockchain network.

Most DeFi companies use the ethereum blockchain to run their operations, and the total value locked on the DeFi network is now over $62 billion, according to data from Defipulse.com.

DeFi applications include stablecoins, lending platforms, prediction markets, and much more, and the industry allows traders to profit from tactics like yield farming and liquidity mining.

Jeff Dorman, CFA, the chief investment officer of the digital asset management firm Arca, told Insider the recent volatility in cryptocurrencies was a “real stress test” for the DeFi space.

According to the CIO, DeFi companies passed this latest test without issue, but in the past, that wasn’t always the case.

Dorman pointed to differences in the DeFi system amid recent price swings compared to volatile periods from the past.

The CIO gave an example of MakerDao, a popular DeFi lending and borrowing platform, that “basically broke” in March of last year when the crypto market saw a steep drop in pricing and was forced to take $4.5 million in socialized losses from the event.

“There was price feed issues with regard to their API connectivity, and as a result, borrowers were being liquidated even though they shouldn’t have been because of a price issue. MakerDao had to socialize those losses and raise new money and pay back all the victims over time,” Dorman said.

This time was very different, however, according to the CIO.

“This time around, it was the exact opposite. I can’t give you an example because nothing happened. Every price oracle worked, every decentralized exchange worked, every decentralized lending and borrowing platform worked, every decentralized insurance company worked. I mean, it was unbelievable to see,” Dorman said.

The CIO pointed out that centralized entities in the crypto world like Coinbase and Binance “were all having problems” with price volatility this time around. DeFi companies, on the other hand, were able to navigate the price swings without issue.

DeFi liquidations did rise 14-fold during the broad crypto sell-off, Debank data shows, as traders in the space looked to protect themselves from losses.

However, at the end of the day, the crypto community was able to whether recent price drops and volatility fairly impressively.

Some traders, especially those using excessive leverage, were hurt, but overall, the industry kept on trucking in what will likely be thought of as a positive sign for the future of the space.

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Cryptocurrency mining stocks recover as bitcoin climbs back above $50,000

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Bitcoin mining.

  • Bitcoin mining stocks mounted a recovery on Friday after bitcoin found support at the $50,000 per-coin level.
  • Shares of Riot Blockchain, Marathon Digital Holdings, BitDigital, and other crypto-associated stocks all rose early Friday.
  • Bitcoin has been under pressure after Elon Musk reversed a decision to accept bitcoin as payment for Tesla vehicles.
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Cryptocurrency mining stocks recovered on Friday as bitcoin climbed back above the $50,000 per-coin level despite continued pressure on the cryptocurrency for its environmental impact.

Shares of crypto miners like Riot Blockchain, Marathon Digital Holdings, and Bit Digital all rose during premarket hours on Friday.

However, over the past month, shares of Riot Blockchain are down 62%, while shares of Bit Digital and Marathon Digital Holdings are down 37% and 61%, respectively.

The fall comes amid a breakdown in bitcoin’s price due to repeated questions about the cryptocurrency’s environmental drawbacks, competition from Ethereum and Dogecoin, and more recently, comments from Tesla CEO Elon Musk.

Musk announced Tesla would suspend vehicle purchases using bitcoin due to the environmental impact of the digital currency on Wednesday.

The billionaire CEO’s bitcoin “U-turn” caused the digital asset’s price to plummet below $48,000 per coin before mounting a mild recovery back above the $50,000 resistance level.

Bitcoin’s fall from grace came just a day after the US Securities and Exchange Commission said the digital currency is a “highly speculative” investment in a warning to investors.

“As such, investors should consider the volatility of bitcoin and the bitcoin futures market, as well as the lack of regulation and potential for fraud or manipulation in the underlying bitcoin market,” the SEC said in a statement.

Despite warnings from the SEC and an Elon Musk “U-turn,” bitcoin miners have continued to invest in their businesses.

Marathon Digital Holdings announced on Monday in its first-quarter earnings report that it produced 386 newly minted bitcoins in 2021 and increased the number of active miners in its operations to 6,800.

Last week, Bit Digital announced that it earned 1,013.40 bitcoin from mining operations in the first quarter and now owns more than 40,000 miners.

And on Monday, Riot Blockchain announced that it mined 206 bitcoin in April, a 90% jump from the 108 bitcoin the company mined in April of last year.

Shares of Riot Blockchain traded up 9.99%, while shares of Bit Digital and Mara Digital Holdings traded up 6.11% and 12.36% as of 9:40 a.m. ET.

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Cryptocurrency-mining stocks could continue to outperform bitcoin amid a ‘modern-age gold rush,’ Fundstrat says

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  • Cryptocurrency-mining stocks have outperformed bitcoin and could continue to beat its gains, Fundstrat said.
  • Shares of Riot Blockchain have jumped 8,000% over the past year, compared with bitcoin’s 525% gain.
  • But investing in mining companies may magnify gains and losses, the firm said.
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Shares of the largest public cryptocurrency-mining companies have outperformed bitcoin in the past 12 months and could continue to do so as bitcoin and the wider cryptocurrency market represent the “modern-age digital gold rush,” Fundstrat’s Leeor Shimron said.

In a recent note, Shimron, the vice president of digital asset strategy, said the purest way to gain exposure to bitcoin mining was to invest directly in mining farms, like Riot Blockchain, Hive Blockchain, Marathon Digital Holdings, and Hut 8.

“Over the past year, they greatly outperformed Bitcoin, which accelerated when the $20,000 all-time high was breached,” Shimron said. “We expect this dynamic to continue as the bull market plays out.”

Riot Blockchain, for example, has gained roughly 8,000% over the past year, while bitcoin has rallied about 525%.

Shimron also said the mining companies had taken steps to capture the growth of the bitcoin bull run, such as investing in efficient hardware and upgrading machines to increase operating leverage and hashrate capacity.

However, investors should be aware that buying shares of mining companies may be risky, with massive upside potential but also the potential for magnified losses during bitcoin’s bear markets.

“Although there is not enough historical data to confirm, mining company equities may serve as a high-beta play on Bitcoin,” Shimron said. “This would magnify performance to the upside and downside for these types of stocks. Clearly their performance is tied to the price of Bitcoin, but they may deliver amplified returns during a bull market. We are seeing this play out in the current market cycle. When Bitcoin enters a bear cycle, we would expect mining equities to have greater downside volatility than Bitcoin.”

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