February 7, 2023


Bitcoin mining stocks


Table of Contents:

What is Bitcoin Mining
Bitcoin Mining Industry Outlook
Falling Prices and Rising Costs
Top Bitcoin and Crypto Mining Stocks
Investment Thesis
Who’s Investing?
What Determines Bitcoin Mining Profits
Investor Takeaway


Bitcoin mining, or supporting the bitcoin network with high-end computers, is a way for investors to profit from the bitcoin boom. While most of us don’t have the technical or financial expertise to set up mining centers of our own, you can invest in companies that specialize in (or support) bitcoin mining.

In this article, we’ll cover some of the top bitcoin mining companies for investors, including graphics card manufacturer Nvidia, tech company Riot Blockchain, and hardware innovator  Canaan.

An investment into bitcoin mining companies has two benefits: you are both indirectly investing in bitcoin, as well as supporting the technology that allows it to grow.

What Is Bitcoin Mining?

“Bitcoin mining” refers to supporting the bitcoin network using powerful computers called “mining rigs.”

By supporting the network and validating transactions, bitcoin miners are awarded freshly minted bitcoin. This is called a block reward, with new blocks created every ten minutes or so. The newly minted BTC are split amongst each miner involved in creating a new block.

Miners are competing with each other to confirm more transactions and be the ones to earn the coveted block reward; it’s become a hardware “arms race” of sorts, and there are gigantic mining operations that use the latest hardware to improve their mining efficiency with high-end graphics cards.

Bitcoin Mining Industry Outlook

The top publicly-traded crypto mining companies today are Bitfarms, Canaan, Hive Blockchain Technologies, Hut 8 Mining, Marathon Digital Holdings and Riot Blockchain. Some semiconductor blue chip stocks, such as AMD and NVIDIA, are also indirectly related to the mining sector, although they don’t directly engage in such activities.

These are all public stocks that you can buy with a traditional brokerage account – no crypto needed. However, in line with crypto, all of these crypto mining stocks have underperformed the broader market over the last 12 months. As of this writing, the S&P 500 declined about 15% over the past year, while Bit Digital, Bitfarms, Hive, Hut and Marathon have dropped by about 90%.

public stocks

However, if we extend the timeframe to three years, the majority of these stocks have still shown generous returns. For example, Marathon (MARA) is up over 550% during that period.

public stocks over three years

The success of crypto miners in 2023 depends on the price recovery of bitcoin, especially after Ethereum has switched to the Proof of Stake (PoS) algorithm, removing it from the universe of mineable cryptocurrencies.

Falling Prices and Rising Costs

The performance of crypto mining stocks follows the price of bitcoin, as that is the most important factor driving mining profitability. Therefore, when the price of bitcoin falls, it becomes difficult for mining companies to secure revenue and income growth.

Another factor that puts additional pressure on mining profitability is the increase in electricity prices across the world, driven by geopolitical tensions and inflation trends that hit energy markets. The World Bank’s energy price index rose over 26% in the four months to April 2022 after surging 50% from January 2020 to December 2021.

In the US, the Energy Information Administration (EIA) expects wholesale electricity prices to grow further by at least 20% in the coming winter.

Top Bitcoin and Crypto Mining Stocks

Let’s have a look at some of the most promising crypto mining stocks you could invest in today.

 

CompanyTickerMarket CapRevenue Growth, Q3 2022 (YOY)12 Month Trailing Total Return, Nov 2022 (without dividends)
Riot BlockchainRIOT$746 million-28.5%-87.87%
CanaanCAN$452.7 million-25.7%-70.50%
Hut 8 MiningHUT$243.3 million-37%-90%
Hive Blockchain TechnologiesHIVE$187 million-64%-89%
Marathon Digital HoldingsMARA$872.4 million-75%-88%
Advanced Micro DevicesAMD$118.6 billion29%-52.66%
NvidiaNVDA$384 billion-16.5%-53.28%
Bit MiningBTCM$24.1 million-96%
Bit DigitalBTBT$82.4 million-89%
Bitfarms Ltd.BITF$142 million-124%-91.4%

riot blockchainRiot Blockchain (NASDAQ: RIOT)

Colorado-based Riot Blockchain “focuses on building, supporting and operating blockchain technologies” and digital currency mining. The company has investments in a number of blockchain startups, such as Canadian bitcoin exchange Coinsquare, and runs a crypto mining operation in Oklahoma City.

Nasdaq-listed Riot Blockchain can be purchased on most online trading platforms; see the current performance here.


canaanCanaan (NASDAQ: CAN)

China-based mining firm Canaan is a major bitcoin mining hardware manufacturer that has been working to create the best mining rigs on the market, this has seen them become suppliers to other mining companies such as Hive Blockchain Technologies.

Canaan is also listed on Nasdaq, so it can be purchased on most online trading platforms; see the current performance here.


AMD Micro Devices (NASDAQ: AMD)

Advanced Micro Devices Inc. is a California-based company that develops computer processors and primarily focuses its GPU products in the gaming community. However, some of its GPUs can also be used to improve the efficiency of bitcoin mining rigs, and this has been beneficial for the company as the bitcoin mining boom has massively boosted its sales.

The firm has flourished in the bitcoin mining scene and now produces specialized hardware solutions for digital currency miners. 

Like the other stocks mentioned, AMD is listed on the Nasdaq exchange and is available at most online brokerages. Check current performance here.

amdAMD Micro Devices (NASDAQ: AMD)

Advanced Micro Devices Inc. is a California-based company that develops computer processors and primarily focuses its GPU products in the gaming community. However, some of its GPUs can also be used to improve the efficiency of bitcoin mining rigs, and this has been beneficial for the company as the bitcoin mining boom has massively boosted its sales.

The firm has flourished in the bitcoin mining scene and now produces specialized hardware solutions for digital currency miners.

Like the other stocks mentioned, AMD is listed on the Nasdaq exchange and is available at most online brokerages. Check current performance here.


hiveHive Blockchain Technologies (NASDAQ: HIVE)

Canadian digital currency mining firm Hive Blockchain Technologies was launched in 2017 as a partnership between Foire Group and leading cloud mining services provider Genesis Mining. The Vancouver-based company runs mining operations in Iceland, Norway, and Sweden and went public in September 2017 on the Toronto Stock Exchange. On July 1, 2021 Hive shares began trading on the Nasdaq exchange.

Available on most online brokerages, you can check the Nasdaq-traded HIVE’s most recent performance here.


hut 8Hut 8 Mining (NASDAQ: HUT)

Hut 8 Mining is another Nasdaq-listed stock that provides equity investors with exposure to the digital currency mining sector. Toronto-based Hut 8 was launched in partnership with Bitfury Group and focuses its business operations on mining and blockchain infrastructure. The company went public in March 2018 and runs its mining farms in Canada.

Hut 8 Mining is listed on Nasdaq: check its recent performance and financials here.


bitmining limitedBit Mining (NYSE: BTCM)

Founded in 2001, Bit Mining owns the blockchain data site BTC.com, as well as mining bitcoin and Ethereum.

The Hong Kong-owned company has announced plans to buy Bee Computing, which specializes in manufacturing crypto mining machinery.

Bit Mining owns data centers in Hong Kong, the United States, and Kazakhstan.

Bit Mining trades on the NYSE. It’s available through most online brokerage platforms; check current performance here.


bit digitalBit Digital (NASDAQ: BTBT)

Headquartered in New York, Bit Digital has several mining operations in North America. The company has a focus on sustainability, with most of its miners running on carbon-free power.

Bit Digital trades on the Nasdaq, so it’s easily available to most investors. Check financials here.


nvidiaNvidia (NASDAQ: NVDA)

Founded in 1993, Nvidia is considered as the leading company in the world for computer graphics cards. Although Nvidia is best known for its GPU gaming processors, the business has a range of GPU cards designed for mining specific cryptocurrencies.

While its cryptocurrency cards add a significant amount to Nvidia’s profits, its gaming processors remain the most vital part of its business.

Nvidia trades on the Nasdaq, so it’s an easy buy for most investors. Check its latest financial performance here.


bitfarmsBitfarms Ltd (NASDAQ: BITF)

Bitfarms Ltd was founded by Emiliano Grodzki and the company raised $155 million in equity during 2021. It now operates five bitcoin mining data centers in Quebec, powered by hydroelectric, as well as another facility in the States. Bitfarms Ltd recently purchased 1,000 bitcoin and now has a treasury of 4,300 bitcoin.

Bitfarms Ltd trades on the Nasdaq; you can see its latest financials here.


marathon digital holdingsMarathon Digital Holdings (NASDAQ: MARA)

Marathon Digital Holdings is a leading provider of bitcoin mining hardware with ambitions to become the United States’ top mining operation. It recently purchased Bitmain’s Antminer S19 XP and is also partnering with other companies like Compute North and Beowulf Energy. The business was incorporated in 2010, before going public in 2011.

Marathon Digital Holdings trades on the Nasdaq, so it’s also available through most brokerage apps. Click here to see the company’s latest performance.


Investment Thesis

Today, it’s difficult for individual investors to engage in bitcoin mining, due to a surge in difficulty level and high hardware costs. Now, the best way to get exposure to the crypto mining market is to invest in public companies operating crypto mining businesses.

This is especially convenient for stock investors who would like to allocate a small portion of their portfolio to digital assets.

Given that most crypto mining companies mimic the short-term fluctuations of bitcoin, stock investors can get exposed to the crypto industry with mining stocks. They are traded on NASDAQ and the NYSE, which makes it easy to include them in any portfolio.

The potential of bitcoin continues to attract many investors, but the risks are high as well. If the US chooses to impose tight regulations on bitcoin trading, then the bearish pressure is likely to extend.

However, if bitcoin manages to leverage its safe-haven asset status amid high inflation, the crypto market may recover quite rapidly in 2023, driving the share prices of crypto mining firms higher.

mining bitcoin

Who’s Investing?

Institutional investors fueled the crypto mining industry in 2021, when bitcoin rallied to its record high. In the case of Riot and Marathon, over 30% of shares are held by institutions, with common names like Vanguard Group, Blackrock, and Fidelity leading the charge.

Still, many institutions showed skepticism even when the crypto mining market was gaining momentum in 2021, and some of them may be closing their positions. As D.A. Davidson analyst Christopher Brendler said back then, “We admit traditional valuation metrics may not apply in this sector as future cash flows are exceedingly difficult to predict.”

Despite the bearish pressure, many institutional investors think this is a great time to enter the crypto mining industry, with stocks being oversold for months.

This might be a generous discount ahead of yet another crypto rally. In mid-October 2022, Binance Pool launched a $500 million lending project for private and public mining companies, which requires applicants to pledge security in the form of digital assets for loans ranging from 18 to 24 months.

Elsewhere, Grayscale Investments, the largest crypto asset manager in the world, is launching a new fund seeking to buy mining equipment at lower prices. The fund will be open to accredited investors, including family offices and hedge funds willing to invest no less than $25,000.

Bitmain co-founder Jihan Wu also announced plans for a $250 million fund to purchase distressed mining assets.

What Determines Bitcoin Mining Profits

Bitcoin mining profitability is determined by a series of factors, but the most important one is the price of bitcoin itself. The higher the BTC price, the better for the mining industry.

The cost of BTC mining differs from country to country, ranging from about $1,400 in Kuwait to a whopping $240,000 in Venezuela, with the average potential cost across all countries at about $35,000 per mined coin, as of August 2022.

The average mining cost for active mining companies exceeds the $20,000 figure, as per MacroMicro data, which means when bitcoin sinks lower than that, it puts additional pressure on miners.

bitcoin average mining costs
Average mining costs in USD (blue line). Source: MacroMicro

Besides the BTC price, there are other factors determining mining profitability:

Hashrate

The bitcoin network’s hashrate refers to the total computing power used by all miners. It reflects how secure the network is, showing direct correlation with the number of nodes competing as well as the computing power of hardware devices used to mine.

hash rate
Bitcoin’s hash rate is accelerating, driven by increased computing power. (Source: Blockchain.com)

As of this writing, bitcoin’s total hashrate is over 270 terahashes per second (TH/s), up almost 75% year-on-year. In the prior month, the network exceeded the 300 TH/s figure for the first time on record.

This suggests that miners are employing even more computing power, despite a decline in crypto prices in 2022.

The mining companies with higher hashrate figures are capable of generating more bitcoin, which directly impacts their profitability. Thus, the more powerful the mining machines they use, such as Application-Specific Integrated Circuit (ASIC) devices, the better.

Difficulty

Another factor for bitcoin profitability is the so-called mining difficulty. This is a relative measure that relies on the difficulty level at the launch of the network as the baseline reference. At the time, bitcoin naturally had the lowest mining difficulty, which is shown by the indicator as 1.

The measure has gradually increased over the years, driven by increased interest from miners, who have employed more sophisticated and powerful hardware devices to compete for the block reward. As of November 2022, bitcoin’s mining difficulty is at an all-time high of 36.95 trillion.

mining difficulty chart
Bitcoin’s mining difficulty is also accelerating, making it harder to compete. (Source: Blockchain.com)

The indicator doesn’t show short-term fluctuations. Instead, the network was programmed by Satoshi to adjust its difficulty level every 2,016 blocks, which occurs about every two weeks.

Every increase in the mining difficulty negatively affects the balance sheet of mining companies.

Electricity

Mining companies try to build their sites in regions with low electricity costs, employing renewable energy technologies, or reaching agreements with governments and municipalities for discounts. Lower electricity costs have a direct positive impact on profitability.

As per Digiconomist, every bitcoin transaction on average requires 1204.11 kWh, which equals the power consumed by a typical US household for over 41 days.

The annual consumption of the bitcoin network is 116.28 TWh as of this writing, which is equivalent to the power consumption of entire countries, such as the Netherlands or Pakistan.

While this is a huge bill for bitcoin miners to bear, it’s still 40% lower than in February-April 2022.

bitcoin energy consumption
Bitcoin energy Consumption is on the rise. (source: Digiconomist)

Bitcoin Mining Hardware Costs

Hardware costs should also be considered when mining bitcoin, although they’re usually one-time amortized costs for the mining companies.

The best-performing mining machines are the latest generation of ASICs, which are designed specifically for mining cryptocurrency. Today, the best ASICs are the Antminer S19 Pro (110 Th/s), WhatsMiner M30S++ (112 TH/s), and Antminer KA3 (166 Th/s). The price per unit ranges from $3,000 to $10,000, depending on the model, seller, and shipping costs.

While it is difficult to make short-term predictions about the mining hardware market, given supply chain shortages and fluctuating crypto prices, the long-term analyst outlook is generally positive.

gold mountain

Investor Takeaway

Crypto mining firms have been in a difficult situation for months, and the recent crypto market downturn has made things worse. We are likely seeing a shakeout, where only the strongest mining companies will survive.

Mining company Core Scientific, listed on NASDAQ, warned at the end of October that it might file for bankruptcy by the end of this year if things don’t improve. London-listed Argo Blockchain voiced similar concerns. And US-based Computer North, one of the largest crypto mining data center operators, recently filed for bankruptcy with $500 million in liabilities.

Getting exposure to the crypto mining sector today is risky. Despite the prolonged crypto winter, however, the companies listed in this article do have healthier balance sheets, with the potential to survive until the next rally.

There are positives to investing in this sector now, as most crypto mining stocks come at a discounted price today. If bitcoin consolidates above $20,000 and attempts to go higher, we expect crypto miners to thrive.

If you are a traditional investor with no crypto exposure, investing in the crypto mining sector might be a great diversification approach, and now could be a great time to “buy the bottom.”

Foundry, which provides financing for bitcoin and other mining equipment, said that investors are waiting in queue to buy mining equipment at discount prices today. We are fielding several calls a week from institutional investors looking to buy distressed mining assets,” the company said.

We think miners with reduced liabilities have the potential to survive the crypto winter and thrive next year. Miners with smaller crypto holdings relative to their market cap include Hive and Bit Digital (BTBT), which are more defensive. Elsewhere, miners with larger crypto holdings relative to their market cap include Hut 8 and Marathon.

As always, do your own research and don’t invest more than you are willing to lose. We recommend no more than 10% of your overall portfolio into crypto and crypto-related assets.

 

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