Bitcoin (BTC) mining companies have suffered in 2022 due to the cryptocurrency bear market. Nevertheless, its shares collectively rebounded sharply on July 6, suggesting that investors have started buying the dips.
One of the intraday gainers was Bitfarms (TSE: BITF), which rose more than 24% to close at $1.29.
Likewise, Marathon Digital Asset Holdings (NASDAQ: MARA), Core Scientific (NASDAQ: CORZ), and Cathedra Bitcoin (CVE: CBIT) were up roughly 12.5%, 16.22%, and 15%, respectively.
Bitcoin miner revenue fell 70% from peak
The rallies come as a respite from what has been a bad year for mining stocks. A nearly 60% year-to-date drop in the price of BTC and an increase in “mining difficulty” have reduced miners’ daily earnings by more than 70% from its November 2021 USD peak. 62 million.
The result is bad for all mining stocks, including those mentioned above. For example, BITF is still 86% below its peak in premarket trading on July 6, despite a 24% rally in the previous session.
Similarly, MARA, CORZ, and CBIT have been trading 80% to 93% below their all-time highs in November 2021, showing a much deeper drop than Bitcoin, whose price has fallen 67% in the same period. of time.
“Bear Covering” to Bull Traps?
However, Bitcoin mining stocks are at risk of falling further, given a potentially prolonged bear market led by macro risks.
Therefore, the sharp rally seen in Bitcoin mining stocks could be due to “short covering” or investors buying the dip, according to Balmy Investor, a pseudonymous analyst.
#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.
Quick June observations. Working on Q2 report with @hashrateindex. ☘️
— Balmy_investor ⛏️ (@balmy_investor) July 6, 2022
#Bitcoin mining stocks rebounded strongly today, with very little change in #BTC price. Some short covering is likely and some investors will move to buy oversold levels.
Quick observations of June. Working on the Q2 report with @hashrateindex.
Hedging short positions involves buying back the borrowed underlying asset to close a short position at a profit or loss. This often leads to frequent bounce moves, especially during a bear market, where bulls risk being trapped.
For example, the MARA stock chart below shows several instances of short-lived rallies during an overall bearish cycle.
Meanwhile, “oversold” bounces are typically triggered when an asset’s RSI falls below 30, which many traditional technical analysts consider a buy signal.
RSI readings from Marathon Digital Asset Holdings, Core Scientific, Cathedra Bitcoin, and Bitfarms were below 30 as of July 6.
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