Crypto is trending and it looks like it is here to stay. Many companies are now accepting Bitcoin and other cryptocurrencies in payment for their services, with Tesla, AT&T, and even some Burger King franchises amongst the crowd. Even Coinbase, the popular cryptocurrency broker, has cashed in on this trend having recently gone public; you can read more about that here.
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But, cryptocurrency is notoriously difficult to produce. The process is called mining and it is an artificially long and time-consuming process requiring a lot of computer power, making it harder to saturate the market. As such, companies such as Riot Blockchain (NASDAQ: RIOT) and Marathon Digital holdings (NASDAQ: MARA) have grown as essential players in the industry, helping produce the most popular cryptocurrency, Bitcoin, which they then sell for a profit.
So in this new and flourishing market, which of these two Bitcoin mining companies is the better investment?
Bull and bear case for RIOT
Riot Blockchain Inc. is a North American company that focuses on cryptocurrency mining. As of the end of 2020, it employed 7,043 miners and up until the end of April 2021, they had mined a total of 697 BTC. The company expects this production rate to have increased by 50% by the end of 2022.
Indeed, this mining company recently placed a $35 million order for 15,000 Antminer computers. These computers are designed for cryptocurrency mining and should increase the hash rate capacity by 65%. The hash rate is essentially the efficiency of its mining operations and it determines how much the company gets paid for its efforts.
Riot holds investments in many blockchain technology companies and it is constantly trying to increase both its energy efficiency and upgrade its mining operations. With these investments, it has its ear to the ground for any new technologies that will help it grow the business.
Unfortunately, Riot is not a transparent company and investors would find it difficult to see more than the bare minimum of information. Indeed, since 2018, the company has repeatedly had delays in its annual reports whilst the time between its third and fourth quarter reports for the Fiscal Year 2021 was verging on five months. Insiders only account for 1% of its shareholder, meaning that retail investors do not have much information to rely upon when it comes to this company.
Bull and bear case for MARA
Marathon Digital Holdings is a digital asset technology company that focuses upon the mining of cryptocurrencies, specifically Bitcoin, as well as the generation of digital assets in the U.S. Up until May 6, Marathon has mined 386 bitcoins bringing its treasury total to 5,324 BTC, which is currently worth more than $229 million.
Indeed Marathon impressed investors with its revenue gain for Q1 of this year. Its revenue came in at $9.2 million, which is an increase of 1,445% which is huge for a small-cap company. Furthermore, the company’s report stated an increased hash rate of 689%, which is a great example of it taking advantage of the most profitable period in history for mining Bitcoin.
However, for investors, there are a number of worrying trends. Marathon Holdings showed stronger than expected income in the last quarter, coming in at $137.4 million up from a loss of $479,000. But, unfortunately, the company has not generated any free cash flow in the last year. In fact, it burnt through $182 million during 2020. After a negative cash flow from the year before, this cash burn presents a high-risk investment.
So, which should I watch?
Of these two Bitcoin mining companies, Marathon is the weaker option. It has had rather a lot of cash burn meaning that its current profit margins are likely unsustainable. As for Riot Blockchain, this company looks a bit more promising. Its potential is increasing as it continues to improve its efficiency in the mining process. Riot could be a great opportunity for any investor looking to expand into the cryptocurrency world.
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