For those who are too reluctant or intimidated to tap into the crypto world, but can’t resist its enticing growth, cryptocurrency stocks present a safer alternative.
By crypto stocks, we mean stocks of companies that either provide crypto mining hardware or themselves mine cryptocurrencies like Bitcoin. With crypto-assets becoming more mainstream than ever, this is the time to invest in companies that validate their blockchain networks.
In This Guide:
- Is It Smart to Invest in The Cryptocurrency Sector?
- Should You Invest in Stocks or Bitcoin?
- Understanding the Valuation of Crypto Stocks
- What Are the Best Crypto Mining Stocks to Buy?
Is It Smart to Invest in The Cryptocurrency Sector?
When it comes to technology that may or may not pan out, cryptocurrency doesn’t belong in the latter category. Remember when Bill Gates, the world’s biggest farm owner and virologist, said the following about the future of the Internet, at Comdex in 1994 — “I see little commercial potential for the internet for the next 10 years.”.
When it comes to cryptocurrencies, Gates said in February he would like to get rid of cryptocurrencies when asked which innovation would leave the world a better place.
In both instances — the Internet and cryptocurrencies — Gates is stifled from thinking clearly because he has ideological blinders. When he ran Microsoft, he always prioritized centralization, tracking, and total control. In contrast, both the Internet and cryptocurrencies represent decentralization.
Creating digital, leaderless assets independent of politicians and central banks that have committed to a historic money supply increase. Bitcoin, in particular, has been hailed as digital gold because its hard coin limit of 21 million renders it a deflationary digital currency.
More importantly, the crypto sector has crossed a lot of major adoption milestones:
- Integration into the world’s largest payment processors like PayPal and Square’s CashApp
- Becoming a reserve crypto asset for dozens of multi-billion hedge funds, corporations, and asset managers
- Achieving greater market capitalization (Bitcoin + all the altcoins) than the world’s top 10 banks
The last adoption threshold occurred this month with Coinbase crypto exchange getting listed on NASDAQ. Suffice to say, this tremendously increased crypto engagement, as noted by Michael Saylor of MicroStrategy.
The final chapter of the mobile wave is global economic empowerment via mobile assets. These stats imply 10 million new #bitcoin holders per month, and more than 250 million by year end. Within five years, bitcoin should reach a billion people.
Should You Invest in Stocks or Bitcoin?
When we take a look at Coinbase (COIN) stock vs. Bitcoin, we see that the cryptocurrency stock is almost entirely in sync with the dominant crypto itself. After all, Bitcoin makes about half of the total market cap of all crypto assets in existence.
By the same crypto, every entity with its holdings tied to Bitcoin’s price moves will follow similar ebbs and flows, be that MicroStrategy, Coinbase, or a crypto mining company.
However, stocks that are not linked to the crypto world rarely generate high yields and dividends that are comparable to cryptocurrencies. On the other hand, notorious crypto volatility demands market discipline.
With that said, although it may seem that Bitcoin is volatile, it is less so than most other altcoins. BTC’s long-term trajectory is the upward one, despite panic-inducing price corrections that inevitably occur.
Predictably, Bitcoin’s price spike follows the unprecedented money supply increase by the Federal Reserve. Physical gold has been a historic tool against currency devaluation.
This time, it appears that Bitcoin is taking this role as a more frictionless, fungible, secure, and mobile digital asset. However, it bears keeping in mind that governments don’t like gold, either digital or physical.
The US government banned the former with the Executive Order 6102, which had been in effect for over 40 years.
In this light, you should view cryptocurrency stocks as a hedge against Bitcoin’s de-platforming. It may come at a time when Bitcoin is deregulated out of having value, as governments deploy their CBDCs — Central Bank Digital Currencies.
Understanding the Valuation of Crypto Stocks
With all these caveats and potential scenarios in hand, let’s take an overview of crypto stocks that have a solid track record and space to grow even further.
But first, here is a brief recap of what cryptocurrency mining, and Bitcoin mining specifically, is all about:
- Due to the way blockchain consensus algorithms work to make it immutable and secure, all computers serving as nodes in the network must solve complex math problems
- As a reward for verifying blockchain transactions, these computers gain network rewards. In the case of Bitcoin, this is 6.25 BTC per block, on average solved every 10 minutes
- The most streamlined such mining operations hold the most fine-tuned hardware, benefiting from the lowest electricity cost.
- In turn, a crypto mining company’s profit comes from the balance between operational costs of running mining rigs and their computational power (hash rate). The higher the hash rate is compared to its costs — hardware, taxes, electricity, space rent — the higher the company’s gains.
These days, one could even rent mining services remotely, as is the case with StormGain, which also serves as a sleek crypto exchange.
From understanding crypto mining, it is easy to see what drives a crypto stock’s potential value — the hash rate capacity. As of April 26, 2021, the global Bitcoin network hash rate is holding at 133.64 million TH/s (tera hashes per second).
Consequently, crypto mining companies will issue their hashing power in either peta (PH/s) or exa (EH/s). In addition to hash rate power, one also must take into account the crypto-friendliness of the country they are located in.
Lastly, one of the more pertinent factors that go into gauging a mining stock’s value is its growth plan.
Specifically, their plans for future acquisition of mining rigs to expand its hash rate capacity and how it deals with electricity requirements. Moreover, have they formed partnerships with local municipalities or subsidies for renewables?
What Are the Best Crypto Mining Stocks to Buy?
It goes without saying that these companies will be valuable if there are no regulatory surprises or aggressive China-like overtures. Moreover, those that have branched out of Bitcoin into Ethereum and other altcoins stand to be more future-proof, having already adapted their business strategy to attain flexibility.
1. Marathon Digital Holdings (NASDAQ:MARA)
- Current hash rate in PH/s: 710
- Possible future hash rate in PH/s: 10,370
- Market capitalization: $3.45 billion
- Location: United States
Main draw: Currently holding 5,134 Bitcoins, the company extended its reach into crypto custody service, particularly for whales. 2020 was not a particularly good one for Marathon as it incurred double the loss — $5.2 million to its revenue of $2.6 million in Q4. Likewise, most of its current BTC holdings are not mined but purchased.
With that said, the company is currently in the expansion stage, planning to increase its mining rigs by 15 times by Q2 2020. Due to these factors, MARA holds a negative rating for the near future, which is why this dip may be an investment opportunity if you are willing to hold for at least a year.
2. Riot Blockchain (NASDAQ:RIOT)
- Current hash rate: 1,300
- Possible future hash rate: 4,000
- Market capitalization: $3.47 billion
- Location: United States
Main draw: Riot Blockchain holds two homes in the US — Colorado and New York. It owes this to diversified operations beyond crypto mining, which extends to auditing, crypto accounting, and similar services for assets derived from blockchain technology. During 2020, the company mined 1,005 BTC, compared to last year’s February, its production has gone up by 43%, well on its way to end 2021 by almost doubling its Bitcoin network rewards.
If Bitcoin continues to hold above $55k for most of the year, Riot should generate a revenue in the range of $120 million. Currently, it holds 1,565 Bitcoins. Unfortunately, it has not yet diversified into altcoins, given the fact that Bitcoin’s total supremacy seems to be waning in favor of Ethereum and other altcoins that provide unique utility. At the same time, it is unlikely that Bitcoin should falter any time soon.
3. Hive Blockchain Technologies (OTCMTKS:HVBTF)
- Current hash rate: 250
- Possible future hash rate: 2,474
- Market capitalization: $1.14 billion
- Location: Canada/Iceland/Sweden
Main draw: Headquartered in Vancouver, but spread into Northern European nations, Hive generated $13.7 million in profits in Q4 2020. Not only does it take advantage of Canadian’s ample hydroelectric power and Iceland’s cheap geothermal, but it also supports Ethereum mining. The king of smart contracts is steadily gaining on Bitcoin, and Hive is helping this process with 20k Ether mined per fiscal quarter.
Although ETH is not hard-capped like BTC, its demand due to utility, NFT, and DeFi growth, continues to outpace its annual issuance. As a result, based on the current ETH price, Hive is poised to annually generate $184 million in ETH alone. In recent news, Hive purchased a 50MW data center in New Brunswick, further fortifying its profile as an eco-friendly company striving to achieve a good ESG rating.
4. Hut 8 Mining Corp (OTCMKTS:HUTMF)
- Current hash rate: 1,073
- Possible future hash rate: 1,300
- Market capitalization: $625.52 million
- Location: Canada
Main draw: As of the beginning of this year, Hut 8 reported to have at least 3,000 Bitcoins as its treasury reserve. Furthermore, almost all of them are self-mined, not purchased. At the same time, it managed to raise $100 million in equity capital, following its shift of leadership in November. Its hash rate power is on its way to mine at least 1,300 BTC per year, accounting for annual revenue of about $69 million.
That is, if BTC doesn’t leave the bearish swing. Even so, when BTC was much lower at the end of 2020, Hut 8 existed the year with a $19 million net income, with a total comprehensive income of $64.7 million. Given this track record, one should assume an even better outlook for 2021.
5. Bitfarms Limited (OTCMKTS:BFARF)
- Current hash rate: 1,200
- Possible future hash rate: 3,000
- Market capitalization: $318 million
- Location: Canada
Main draw: Founded in 2017, at a time when Bitcoin was three times less in value, Bitfarms is a veteran crypto miner on the North American continent. It ended 2020 with a gross profit of $2.9 million, with a gross mining profit of $13.8 million, which is an improvement from the previous year. In 2021, Bitfarms raised C$80 million in equity capital on top of repaying in full outstanding debt.
As of this March, Bitfarms holds 3,514 Bitcoins, having mined 3,014 Bitcoins in 2020. Such low BTC supply, considering its veteran status in this arena, can be attributed to its cost-cutting program — selling BTC in order to provide more energy-efficient miners. Moving forward, Bitfarms plans to accumulate BTC with the Bitcoin Pilot Retention Program beginning this year.
The program already succeeded in holding at least 250 BTC in less than two months. The company aims to become 5% of the global Bitcoin network hashrate by 2020. Like other Canadian crypto miners, it is well suited to pass the ESG scrutiny, as it mostly taps into hydro, solar, and wind power.
6. Bit Digital (NASDAQ:BTBT)
- Current hash rate: 2,453
- Possible future hash rate: N/A
- Market capitalization: $624.78 million
- Location: United States
Main draw: Formerly known as Golden Bull Ltd, this New York-based mining company is a rising star in the crypto mining world. Judging by its January output of 424.7 BTC, it stands to generate about $280 million in revenue annually. This makes it one of the biggest North American companies by hash rate metric.
Moreover, given the trend of anti-Bitcoin sentiments coming from the eco-circles, Bit Digital is aggressively pursuing going green. Last week, it added 40MW worth of hash power in collaboration with Compute North, accounting for 13k new ASIC mining rigs. As such, Bit Digital is already ahead in the sustainability game, by having access to a flexible energy network consisting of solar and wind.
As you can see from the graphs of these crypto stocks above, they follow the slump of the BTC price. At the same time, it is a certainty that the Federal Reserve will continue to devalue the USD, perhaps even introducing negative interest rates as it already occurred in Germany. Such negative macroeconomic conditions make for a fertile ground for Bitcoin to once again move into the bullish territory.
In the upcoming months, take note of these companies’ hash rates. If they are aligned with their projections, it means they have competent leadership. Adjust your cryptocurrency stocks portfolio accordingly.