When is the right time to start investing in crypto?
The release of disappointing statistics on the Consumer Price Index led to a sharp decline in the capitalization of both traditional indices and the crypto market. The 8.3% figure was above the consensus of market participants and is likely to force the U.S. Federal Reserve to raise the rate by at least 0.75%, which will complicate liquidity conditions in financial markets quite a lot. As a result, the total capitalization of crypto tokens was about 970 billion, down 7% in less than an hour.
Arguments for further prolonged monetary policy tightening by monetary authorities in developed countries are gaining support. In addition, the rising global dollar index (the current figure of 109 points is less than the previous high of 120, but is trending upwards) create additional costs when investing in crypto assets for non-US market participants, so at the moment all trading is denominated in digital private versions of the dollar through the use of USDT, USDC, BUSD stablecoins.
State of the public mining sector
Despite a significant drop in the price of BTC, the mining complexity indicator is constantly growing, reflecting infrastructure development and long-term investor confidence in the segment. The current drop coincides with the achievement of an all-time high of 236 E/H for hash rate — a measure of computational power of the network.
Moreover, as the statistics for the second quarter showed, public companies are experiencing different levels of burden on operations. Of course, the drop in price from historical highs to local lows of more than 75% has made adjustments to the activities of all mining companies. However, judging by the level of sales, we can distinguish both leaders (e.g. Marathon, HUT8, BitNile) and outsiders (Core Scientific, Bitfarms, Northern Data).
At the same time, the total revenue of the sector has decreased twice from the highs of 2021, and, for example, in August it was 656m USD, with the share of transaction processing at $9 million (according to TheBlock analytical service).
The following conclusions can be drawn:
- Companies continue to increase capacity despite the current decline in market capitalization.
- Competition is intensifying. Organizational advantages in the form of cheap electricity, tax incentives and the presence of a powerful fleet of mining devices are beginning to matter more and more. Competition intensifies. Organizational advantages in the form of cheap electricity, tax incentives, and the presence of a powerful fleet of mining devices are becoming increasingly important.
- Further market declines could lead to bankruptcies, mergers and acquisitions, and sales of collateralized equipment on the open market. Such a series of events will make the leaders even stronger, and in the medium term will lead to increased volatility of shares of the mining sector.
- The greater a company’s reserve, the greater its capacity to respond to changing macro conditions, and the higher its capitalisation will be in case the bitcoin value rises in the future.
The market conditions are certainly not the most favourable at the moment, but increased competition among companies in the same sector will allow future leaders to emerge, which is an interesting opportunity for medium- and long-term investment in the current situation.
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