Cryptocurrency mining companies have been quite volatile this year. As we approach year end, it appears this volatility is not letting up for crypto miners Cleanspark (NASDAQ:CLSK), Ebang International (NASDAQ:EBON), and Hut 8 Mining (NASDAQ:HUT).
At 11 a.m. ET, these three crypto miners were down 18.6%, 12.6%, and 8.4%, respectively, from last Friday’s close. That said, Hut 8 and Ebang both rebounded 5% on Friday, with Cleanspark trading slightly lower over yesterday’s close.
This continued downside pressure on crypto miners appears to be the result of geopolitical headwinds for the sector. Following a high-profile Chinese ban on crypto mining, other jurisdictions have picked up the pace. Bitcoin’s (CRYPTO:BTC) terahash rate has recovered to pre-China ban levels, with countries including Thailand, Kazakhstan, and Iran picking up some of the slack.
However, recent crackdowns from other jurisdictions feeling the strain of Bitcoin mining on local power systems may provide headwinds for Bitcoin’s mining outlook for 2022. Countries like Iran have put further restrictions in place on Bitcoin mining for the winter. And Kazakhstan has also considered adding nuclear power to its power grid, to combat strain due at least in part to crypto mining.
These geopolitical issues haven’t dissuaded some experts from suggesting Bitcoin’s computational power could double in 2022. So — who’s right?
The outlook for crypto miners heading into 2022 remains highly uncertain. With more than 90% of the total Bitcoin in circulation currently mined, the rewards miners receive are increasingly reliant on higher Bitcoin prices. Should the price of Bitcoin continue to stagnate, crypto miners could be in for some near-term downside price pressure.
On the other hand, a bullish recovery in Bitcoin prices combined with a global push toward crypto adoption could propel these stocks higher. Given the leverage these crypto miners provide to the underlying price of Bitcoin, investors looking to add exposure to Bitcoin in a way that maximizes their return on investment may turn to these crypto miners as leveraged bets on the crypto space.
The geopolitical environment for crypto miners is one that looks to be rather bearish right now. While that can change, there’s no doubt that energy consumption concerns tied to crypto mining activities are likely to remain a hot topic in 2022.
Investors appear to be logically pricing in these risks today. Barring a significant rally in crypto prices to fresh all-time highs, these crypto mining stocks may have difficulty regaining momentum, at least in the near term.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.