Bitcoin mining stocks have outperformed BTC prices in the last year. Discover why this has happened and explore the top-performing Bitcoin mining stocks in this guide.
The Bitcoin (BTC) market has registered a year-to-date (YTD) appreciation of 75%. Despite its performance, the cryptocurrency’s price has been surpassed by the price of Bitcoin mining stocks.
These stocks, which provide a way into Bitcoin without needing direct ownership, have seen their value surge more than 200% YTD, with the upswing coming from positive regulatory developments involving the possible approval of BlackRock’s spot Bitcoin exchange traded fund (ETF).
The development has sparked interest in Bitcoin mining stocks, and here we give a brief overview of the sector.
Bitcoin mining stocks: what are they?
While anyone can engage in BTC mining, the process is often expensive and energy-intensive and has become the forte of several giant Bitcoin mining companies. These firms own large-scale computer operations dedicated to BTC mining, investing heavily in hardware, software, and electricity to run those operations.
Many of them are traded publicly on the stock exchange, allowing people to invest in Bitcoin mining without being directly involved in the process or holding a unit of Bitcoin. Investors can buy these companies’ shares as they would for any other public firm, making them partial owners entitled to a share of its profits.
Role of Bitcoin mining stocks in the crypto ecosystem
Bitcoin mining stocks represent a unique asset class within the broader crypto market. They give investors exposure to Bitcoin without directly buying or trading BTC itself.
Demand for the stocks is driven by several factors, with the primary one being the Bitcoin price. As it rises, so does the potential profitability of Bitcoin mining, making the stocks attractive to investors.
Conversely, when BTC prices drop, the stocks follow suit. Furthermore, as BTC adoption grows globally, analysts expect demand for Bitcoin mining stocks to increase.
These stocks offer a high-risk, high-reward dynamic in the broader market trend. In bull runs, when BTC prices rise, they can provide substantial returns. However, they can also cause significant losses during a downturn, making them more suitable for risk-tolerant investors.
The success of Bitcoin mining firms may profoundly impact the overall market, as analysts consider them indicators of investor sentiment towards BTC in particular and cryptocurrencies in general.
Moreover, as they grow, such companies often diversify their operations, potentially contributing to the maturation and institutional acceptance of Bitcoin and the crypto sector.
Factors influencing Bitcoin mining stocks
Several factors influence the profitability of Bitcoin mining companies:
Hardware costs
Bitcoin mining requires high-performance computer systems known as application-specific integrated circuit (ASIC) miners. The more powerful a system, the quicker it can solve mathematical problems and earn BTC.
However, these rigs don’t come cheap. Their prices are often closely related to the prevailing hashprice, with the most energy-efficient ones reportedly costing an average of $20 per terahash, which translates to about $2,000 per unit. As such, the cost of these machines can significantly impact profitability.
Electricity costs
Mining Bitcoin uses a lot of energy. Some studies estimate the process currently uses as much as 129 terawatt-hours a year, which is more than some small countries need. Therefore, the cost of electricity becomes a critical factor influencing mining profitability.
Miners in regions with high electricity costs may have their profits eaten away by energy bills.
Regulatory landscape
Crypto regulation has been a significant bone of contention in the last few years, with some countries outrightly banning digital assets, including Bitcoin, while others have embraced it. Between the two extremes exists an array of diverse rulemaking that has only served to muddy the regulatory landscape around the mining and use of crypto.
However, with major jurisdictions like the European Union crafting and adopting a comprehensive regulatory framework for digital assets known as MiCA and several bills currently in front of U.S. legislators awaiting debate, many hope the sector will soon have some much-needed clarity.
Market volatility
Bitcoin mining and BTC prices have a cyclical relationship. When BTC prices increase, mining becomes more profitable, attracting more miners to the network and pumping the value of Bitcoin mining stocks.
The resulting competition can make it more challenging to mine but also increase the Bitcoin network’s security and robustness.
On the other hand, falling BTC prices make mining unprofitable, especially for those with high operational costs, which may cause them to leave the network.
Other crypto prices may also influence Bitcoin mining stocks. Most operations mine several other proof-of-work (PoW) cryptocurrencies besides BTC. Therefore, a surge or drop in their prices may increase or decrease the firms’ revenues, positively or negatively affecting their share values.
Competition
High competition among Bitcoin mining companies can lead to lower profit margins, negatively affecting their stock prices. It usually pushes mining companies to find ways to differentiate themselves.
Those who can leverage technology or other factors to outperform competitors can boost their profitability and stock price.
Conversely, if competition decreases due to regulatory crackdowns or market consolidations, the remaining outfits could enjoy higher profit margins, potentially increasing their stock prices.
Overview of top performing Bitcoin mining stocks
Riot Platforms (RIOT)
Riot is a U.S. Bitcoin mining company with operations in central Texas. It runs North America’s largest Bitcoin mining and hosting facility, a 700 MW data center in Rockdale.
In the second quarter of 2023, the company reported record revenues amounting to $76.7 million and a record hash rate capacity of 10.7 exahashes per second (EH/s). Riot mined 1,775 BTC while lowering its average production cost to a reported $8,389 per Bitcoin.
Riot stock is currently trading at around $10. At its 2023 peak, recorded in July, the stock sold for as much as $20.29, almost double the current prices and six times as much as its January low of $3.25. The current stock price also represents nearly 225% growth from January.
Financially, Riot has shown steady progress in the last ten months. The $76.7 million Q2 2023 revenue is $16.55 million higher than Q4 2022 and $3.5 million better than Q1 2023. However, operating expenses have risen by over $15 million, going from $76.49 million in Q2 2023 to 91.64 million in Q3 2023.
Marathon Digital Holdings (MARA)
Marathon has also recorded some growth in the past year, primarily due to its significant investments in mining hardware and infrastructure.
In Q2 2023, the company raked in revenues to the tune of $81.8 million, underpinned by a 314% year-over-year growth in BTC production.
The firm reported a hash rate of 17.7 EH/s and more than 12,500 BTC on its books. It recently entered into a custodial services agreement with Fidelity to store part of its Bitcoin holdings.
At the time of writing, its shares were trading at around $9.
The company is scheduled to hold a conference call for its Q3 2023 earnings on Nov. 8, 2023.
Marathon stock is currently 204% higher than at the beginning of the year when it traded at $3.11. The company has a market cap of $2 billion and an average trading volume of $30.64 million.
Its 2023 second-quarter earnings are a nearly 60% improvement in the first quarter and a more than 187% jump from the fourth quarter of 2022 when the company recorded $28.42 million in revenues.
Hut 8 Mining Corp (HUT)
Hut 8 is a publicly traded crypto miner based in Alberta, Canada. The company has a diversified business model that includes Bitcoin mining, high-performance computing, and hosting services. It has reportedly mined over 5,000 BTC since its inception in 2011.
In September 2023, Hut 8 produced 111 BTC, with an average rate of 3.7 coins per day. The number was eight better than the previous month when the company mined 103 coins.
However, with the Securities and Exchange Commission’s (SEC) BlackRock spot Bitcoin ETF decision looming, Hut 8 has reportedly decided to hold on to its coins despite the cryptocurrency hitting the $35,000 level in the last few days.
As of last month, Hut 8 currently holds 9,366 BTC, valued at nearly $324 million. As of Oct. 27, 2023, the company’s shares traded on NASDAQ at $2.20.
The price is nearly 195% higher than its lowest level of 2023, attained at the beginning of the year. However, it is significantly lower than the $4.45 it reached on July 13.
Like many Bitcoin mining companies, Hut 8 isn’t currently profitable, meaning analysts have resorted to checking revenue growth to give them an idea of the firm’s trajectory. Per reports, Hut 8’s revenues have grown by about 31% annually over the last three years, with the stock price compounding 40% in the same period.
Cipher Mining Inc (CIFR)
Incorporated in 2020, Cipher Mining is a New York-based Bitcoin miner with operations in Texas, Ohio, Kentucky, and West Virginia.
CIFR stock is trading at around $3.52, marking a gain of 356% YTD. However, the price is still 33% lower than Cipher’s best performance this year, when it sold for $5.30.
In terms of revenue, Cipher Mining earned $31.22 million in the second quarter of 2023, up more than $9 million from its Q1 results. However, operating expenses increased from $26.85 million in the first quarter of 2023 to $34.39 million in the third quarter.
By September 2023, the company had grown its mining rig numbers to approximately 70,000 units. The machines produced 416 BTC that month, with Cipher selling 382 coins per its latest operational update.
Looking to the future
The speculation around the potential approval of BlackRock’s spot Bitcoin ETF has stirred the crypto market. On Oct. 24, Bitcoin’s price shot up to $35,000 for the first time since May 2022.
The coin is currently changing hands at around $34,100, down 1% on the day and up 30% over the last 30 days per CoinGecko.
Should the SEC approve BlackRock’s request, analysts suggest it would profoundly affect the Bitcoin mining industry and the broader crypto market.
A Bitcoin ETF would ostensibly provide a more accessible and regulated method for investors to gain exposure to BTC, potentially bringing an influx of institutional money into the market. Some think it would drive up demand for Bitcoin, leading to increased activity in the Bitcoin mining sector.
In turn, increased Bitcoin mining activity could lead to higher revenues for companies in the sector, which could boost their stock prices.
However, while it all sounds rosy, it’s important to remember that the mining industry is heavily influenced by other factors besides the price of BTC, which could still bite into any gains from the coin’s newfound popularity.
