Bitcoin mining stocks outperform BTC in 2023, but on-chain data suggests a possible stall.

Bitcoin mining companies have significantly outperformed Bitcoin in terms of stock price gains during the recent bullish price movement of the cryptocurrency. The top nine public Bitcoin mining firms have seen an average year-to-date gain of 257.14%, which is nearly three times higher than Bitcoin’s gain in the same period.

This higher gain is due to the leveraged beta effect that mining stocks enjoy. When Bitcoin’s price rises, these stocks perform better, but they also face greater downside risk when Bitcoin’s price drops.

Given their high leveraged beta, the performance of Bitcoin’s price will continue to be a crucial factor in determining the direction of mining stocks.

The mining sector trends indicate that miners are preparing for the long term by acquiring more machines. However, their accumulation levels have not reached the same levels as previous bull markets, suggesting that the upward trend in stocks could stall in the medium term.

Multiple mining companies have expanded in the past month, which has contributed to the positive sentiment and long-term value of these stocks. Additionally, mining conditions have improved with a decrease in hash rate and an increase in price.

Mining companies make expansive moves

In June, public mining companies in the United States made aggressive moves, indicating strength in the industry in the long run.

Hut 8 Mining merged with US Bitcoin Corp, increasing its total hash rate to 9.8 EH/s and making it the third-largest public mining entity in the United States. Cleanspark invested $9.3 million to increase its hash rate by nearly 1 EH/s.

Riot Blockchain entered into a $170 million deal with mining hardware manufacturer MicroBT to almost double its hash rate capacity by 2024.

Mining stocks are prepped for a short squeeze

Marathon Digital Holdings, Riot Blockchain, and Cipher Mining have high short interest, indicating that a significant portion of their shares have been borrowed and sold in anticipation of a decline in stock price. This could be due to excessive debt and stock dilution, which negatively impact existing shareholders.

Mining profits improve, but miners are selling

Data shows that miners have reduced their holdings to a near one-year low, as indicated by the one-hop supply metric from Coin Metrics. Additionally, there has been a significant volume of miner coins transferred to exchanges, surpassing even the levels seen during the 2021 bull market.

Furthermore, the amount of Bitcoin held by miners is currently at a low point, which is likely due to low profitability throughout most of 2023.

In early June, the total computing power of the network reached a new all-time high. However, it has been decreasing due to heat waves in Texas. The decrease in computing power and the increase in the price of Bitcoin above $30,000 is contributing to higher profitability for miners.

The production cost of the most popular mining model, the Antminer S19, ranges from $20,000 to $25,000, depending on the cost of electricity.

Notably, companies with mining facilities in Texas, such as Riot, may incur some losses due to the weather conditions. However, it is likely that these companies have taken precautions to mitigate the risks associated with heat waves, as they have experienced them before.

Related: Riot Blockchain’s Bitcoin mining productivity dropped 28% year-on-year amid record-breaking heat in Texas

Nevertheless, despite the increase in profitability, miners are selling off Bitcoin, which could be an indication of potential future price declines.

Although revenue improved in June, miners have continued to spend on expansion and operational costs, suggesting that a bull market for cryptocurrencies has yet to begin.

The expansion plans of companies and the decrease in Bitcoin holdings by miners on the blockchain indicate medium-term price stability or a potential correction in mining stocks if the price of BTC drops.