2 Reasons Why TeraWulf Sank 10% Today

Cryptocurrency mining companies, such as TeraWulf (NASDAQ: WULF), have had a notable run this year. Surging more than 120% year-to-date, shares of WULF stock have certainly impressed even some of the more speculative investors with this move. However, today's decline of 10.2% as of 1 p.m. ET is suggesting that some investors may be pulling back on their growth expectations for this top Bitcoin (CRYPTO: BTC) miner.

Several key drivers are shaping a new narrative around TeraWulf, as well as most companies in this space.

Let's dive into why TeraWulf is on the decline today, and whether this recent momentum may change course.

Lower Bitcoin prices and higher share count spooking investors

Source: Getty Images.

With some significant plans in tow, TeraWulf's management team has placed substantial bets on becoming more of a compute story than a Bitcoin mining story. With a multitude of GPUs and servers currently in operation (minting new Bitcoin), the company plans to expand its next-generation data centers to handle high-performance computing and AI workloads.

This transition is one that investors may have hoped would be financed via surging Bitcoin prices. However, with Bitcoin slumping 3.5% at the time of writing, that's clearly a negative for investors examining TeraWulf's balance sheet and considering the feasibility of this buildout.

How this buildout will be financed is an even hotter topic than usual, considering TeraWulf just completed a conversion of some of its preferred stock last week, which significantly increased the company's outstanding share count. And while these conversions are typically a net positive (they require a large increase in a company's share price to be executed), further dilution risks tied to this stock are clearly being priced in by the market.

I'm of the view that TeraWulf's underlying plans, its strong price appreciation this year, and relatively stable investor base are net positives. We'll just have to see if more Bitcoin volatility throws a bigger wrench into the mix, or if bulls will regain control of this high-quality compute player moving forward.

Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.