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The United States leads the world in cryptocurrency mining, but this does not affect the value of shares of mining companies in the country.
After analyzing data obtained from mining pools BTC.com, Poolin and ViaBTC, the Cambridge Center for Alternative Finance found that the hashrate of mining in the US increased by 4% from 35% at the end of August 2021 to 39% in January 2022, but shares of mining companies fell along with bitcoin.
Mining is a time-consuming process that allows “validators” to be rewarded for verifying transactions in their registration in the public registry of the blockchain. Verifying transactions involves guessing the hash, the unique number associated with each transaction. To do this, you need computing power
The more miners connect to the network, the more complex the algorithm for verifying transactions, so mining this cryptocurrency requires more and more powerful computers.
Ten years ago, bitcoin could be mined using a home computer. Now, public companies in the U.S. such as Riot Blockchain, Marathon Digital Holdings, and Core Scientific are “mining” bitcoins on entire mining farms.
Shares of mining companies fell by almost 50%
After the recent collapse of the TerraUSD stablecoin, many cryptocurrencies also fell in price, which led to a drop in the shares of mining companies.
Since April 18, shares of Marathon and Core Scientific have fallen about 47%, while riot shares have halved. The value of shares of the Canadian mining company Hut 8 Mining Corp also decreased by 41%.
Over the past month, bitcoin has fallen in price by 25%, while its correlation between the shares of technology companies and cryptocurrencies has increased. Last week, it reached a three-month peak.
The level of correlation between cryptocurrencies and stock indices ranges from 0.67 to 0.78 (1 is fully correlated, 0 is no connection), while bitcoin fell by 10% on the day when the cryptocurrency showed the greatest correlation with the stock market.
According to the head of Numerai, a hedge fund in San Francisco, the cryptocurrency is now “part of the mainstream financial system, and this is bad for its viability as an alternative asset class. Cryptocurrency does not serve its original purpose as a defensive asset.”
Traditional investors sell digital assets
Some analysts argue that many traditional investors have added cryptocurrency to their portfolios. But as tech stocks plummet, investors are selling digital assets to make money.
The environmental consequences of mining also contribute to the decline in the share prices of mining companies. Already, 160 cryptocurrency bills are pending in more than 30 states.
Recently, a bill was passed in New York that will not allow the restoration of old fossil fuel power plants for cryptocurrency mining.
Miners need cheap electricity and more computing power to make their operations more competitive. To do this, they resume work at old power plants running on fossil fuels. This is opposed by environmentalists.
In addition, investors may not be in the mood to buy shares of mining companies due to market volatility. This situation will affect the attraction of capital to the mining industry.
“Capital markets and capital formation are challenging for many in our industry,” Core Scientific CEO Mike Levitt said last week.
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