BTC's Price Drop: Market Manipulation by Mining Companies?
BTC could further drop as the companies (that mine it) speculate on the price; bulls should not be misled by such market manipulation tactics.
The crypto bear market in 2022 severely impacted the profitability of Bitcoin (BTC) mining companies. However, their stocks collectively rebounded sharply on July 6, which could mean that investors have started buying again after prices fall.
One of the top gainers on this day was Bitfarms (TSE: BITF), whose share price rose by over 24% to close at $1.29.
As a result, Marathon Digital Asset Holdings (NASDAQ: MARA), Core Scientific (NASDAQ: CORZ), and Cathedra Bitcoin (CVE: CBIT) increased by over/around 12.5%, 16.22%, and 15%, respectively.
Bitcoin miners' revenue has fallen by 70% from its peak
The rallies are a welcome break from the bad year that mining stocks have had. The drop in BTC price and increase in "mining difficulty" caused miners' daily revenues to fall by over 70% from their November 2021 peak of $62 million.
The result is bad for all the mining stocks, including those mentioned above. For example, BITF is still down 86% from its peak in pre-market trading on July 6 despite a 24% rebound in the previous session.
As with Bitcoin, the prices of MARA, CORZ and CBIT have fallen by 80%-93% since their record highs in November 2021. This is a far deeper drop than Bitcoin's, which has lost 67% in the same time period.
Short covering can be used to trick bulls?
Bitcoin mining stocks may suffer further losses, as macroeconomic factors could prolong the bear market.
According to Balmy Investor, a pseudonymous analyst, the sharp rebound in Bitcoin mining stocks could be due to "short covering" or investors buying the dip.
#Bitcoin mining stocks bounced strong today, with very little change in #BTC price. Likely some short covering, and some investors moving in to buy oversold levels.
— Balmy_investor ⛏️ (@balmy_investor) July 6, 2022
Quick June observations. Working on Q2 report with @hashrateindex. ☘️
Covering shorts involve buying back the borrowed underlying asset to close a short position. This can lead to frequent rebounds, especially during a bear market, where bulls are at risk of being trapped.
Core Scientific sold $167 million worth of Bitcoin holdings in June
For example, the following MARA stock chart shows several cases of short-lived upside runs during an overall bearish cycle.
In traditional technical analysis, an RSI reading of 30 or lower indicates a possible buying opportunity.
As of July 6, the RSI readings of Marathon Digital Asset Holdings, Core Scientific, Cathedra Bitcoin, and Bitfarms were below 30.
