When the major centralised exchange FTX collapsed in late 2022, cryptocurrencies like Bitcoin and Ether saw massive declines in their value as panic selling took over and traders rushed for the exits by dumping their holdings. Since then, the crypto scene has managed to mount a triumphant comeback with Bitcoin and Ether boasting year-to-date (YTD) price appreciation of 77% and 54% respectively. This has caught the attention of many speculators who are looking for assets that can beat benchmark indices like the S&P 500, which has returned about 16% YTD.
One such asset that has outperformed both Bitcoin and Ether are crypto mining related stocks. These companies effectively provide exposure to the cryptocurrency markets without investors and traders needing to purchase, store or manage their own cryptocurrencies. Keen to find out more about trading and investing in the best crypto mining stocks on the market? Read on as we cover all you need to know about the top crypto mining companies and their performance compared to the broader share market.
What Are Crypto Mining Stocks?
Crypto mining stocks represent shares in companies that are involved in the process of crypto mining. Essentially, these companies use powerful computers to solve complex mathematical problems, a process that results in the creation, or "mining," of cryptocurrencies like Bitcoin or Ether. These companies also validate transactions made on the decentralised ledger blockchain, where all cryptocurrency transactions are recorded. Crypto miners earn cryptocurrency as a reward for their efforts in authenticating transactions (AKA mining).
Simply put, traders may consider trading crypto mining stocks like leveraged Bitcoin stocks since they tend to follow the price movements of Bitcoin and deliver amplified returns, whether to the upside or downside. This is evident in how their stock price movements outpace the volatility of the underlying crypto assets being mined. As a company's mining operations become more successful and profitable, so does its stock's value. Thus, investors and traders tap into the potential profits generated from mining operations without engaging in mining or managing their crypto holdings themselves by investing in crypto mining stocks.
Factors Affecting the Price & Value of the Best Crypto Mining Stocks
The Price of the Mined Cryptocurrency
Firstly, we have the price of the underlying cryptocurrency that the company mines. For example, if a company primarily mines Bitcoin and the cost of Bitcoin increases, the stock price of that company may rise as well. This is because the value of the mined Bitcoin directly impacts the company's revenue and profitability as most crypto mining companies sell off their BTC holdings to continue keeping their operations afloat. Conversely, the opposite is true where the Bitcoin mining stock's value is likely to fall if Bitcoin declines in value.
Operational Efficiency of the Crypto Mining Company
Secondly, the operational efficiency of the mining company plays a crucial role. From ensuring that miners are running at optimal speeds to keeping operating temperatures cool, crypto mining companies have a tight ship to run to get the various components of crypto mining to run optimally. Companies that can mine cryptocurrencies more efficiently and use less energy will have lower operational costs, leading to higher profits. Additionally, companies with access to cheap electricity have a distinct advantage, as electricity is a significant cost factor in crypto mining. According to VisualCapitalist's list of Bitcoin mining costs, Kuwait, Algeria and Sudan top the list regarding Bitcoin mining efficiency.
Crypto Mining Regulations
Thirdly, the regulatory landscape surrounding cryptocurrency mining significantly impacts the value and trajectory of crypto mining stocks. Because cryptocurrencies operate in a largely decentralised and unregulated space, they are subject to a high degree of regulatory scrutiny and potential legislative changes. Countries like China have enacted strict regulations on crypto mining, leading to a massive migration of mining operations to countries with more favourable laws. Ultimately, investors and traders of crypto mining stocks must stay abreast of these regulatory changes as they can significantly impact the profitability and viability of crypto mining companies, thereby affecting the valuation of their stocks.
Best Crypto Mining Stocks to Watch
While there are plenty of crypto mining stocks to choose from, we're focusing on these top crypto mining stocks with market capitalisations of more than US$500 million. By our definition, we are determining these crypto mining stocks as the best because of their background and growth potential. From the massive scale of Riot Platforms to the renewable energy mining of CleanSpark, here are the top crypto mining companies to add to your watchlist, ranked according to their market capitalisation as of 11th August 2023.
Riot Platforms (NASDAQ: RIOT)
Market Capitalisation: US$2.82B
Riot Platforms tops our list of best crypto mining stocks because of its huge market capitalisation. With a business model primarily focused on Bitcoin mining, this US-based company operates extensive, state-of-the-art mining facilities that utilise renewable energy sources, aligning with global demands for sustainable practices. Riot's strategic operations have allowed it to gain significant traction in the crypto mining space, demonstrating consistent increases in mined Bitcoin despite market fluctuations. Their success can be attributed to their continual expansion and upgrades of mining hardware, significantly boosting mining efficiency and overall output. Such expansion examples include its Whinstone and Rockdale mining facilities. Recently, Riot employed a power utilisation strategy that took advantage of the massive heat wave in its operating state of Texas. By selling power at market-driven spot prices, Riot was able to reduce its operational costs and improve its balance sheet for its Q2 2023 earnings. This gave Riot an edge against other crypto miners and more cash flow to optimise and refine their mining operations amid the ever-volatile crypto market.
Marathon Digital Holdings (NASDAQ: MARA)
Market Capitalisation: US$2.59B
Marathon Digital Holdings is another critical player in the crypto mining industry, boasting a robust business model heavily geared towards Bitcoin mining. With its operations in the United States, Marathon Digital Holdings leverages advanced and efficient mining methods to optimise its Bitcoin production. Rather than just focus on energy optimisation and usage of the most affordable energy possible, Marathon takes on an ESG approach by considering renewable energy. This gives their Bitcoin and crypto mining activities a green edge compared to other crypto mining companies. This, combined with its high hash rates for crypto mining, makes Marathon an attractive investment opportunity for those seeking exposure to the crypto mining industry through such stocks. With its latest US$400M Abu Dhabi mining facility announcement, Marathon shows that it's committed to scaling up its mining operations. Hence, it comes out on top compared to the other best crypto mining companies.
Cipher Mining Inc (NASDAQ: CIFR)
Market Capitalisation: US$0.92B
Unlike the two best crypto mining stocks mentioned on this list, Cipher Mining differentiates itself from the competition because of its dedication to making its mining operations profitable. This is thanks to Cipher's Power Purchase Agreement (PPA) with Luminant, which essentially lets Cipher sell energy back to the grid when the current price of electricity is higher than the value of Bitcoins mined. Overall, this gives Cipher a significant cost advantage over its crypto mining competitors as they deliver an overall cost of about US$0.027 per kWh, an average lower than crypto miners like Riot and Hut 8. Cost benefits aside, Cipher recently announced a purchase agreement with Canaan of 11,000 mining machines. This represents an 18% increase in mining machines, estimated to increase mining speeds by about 36% by the end of 2023. With ambitious growth targets and optimised cost cutting, Cipher Mining certainly shows promise regarding growing in the crypto mining market.
CleanSpark (NASDAQ: CLSK)
Market Capitalisation: US$0.73B
CleanSpark is a crypto mining company that's focused on energy-efficient mining solutions. The company operates advanced microgrids and custom electrical equipment to mine Bitcoin, thus significantly reducing its energy costs and enhancing operational efficiency. Based in the United States, CleanSpark strongly emphasises sustainable practices, using an energy mix that includes renewable sources. Implementing CleanSpark's proprietary mPulse software in its microgrids allows the company to optimise its energy use, thus further reducing costs and minimising its environmental footprint. This is achieved by the software's ability to learn energy usage patterns and dynamically adapt efficient modes of operation to ensure customers optimise their power usage and costs. To assure existing investors of its growth ambitions, CleanSpark announced that it has fully secured funding for its expansion, improving existing mining hash rates by more than 66%. By considering CleanSpark's stock as one of the best crypto mining stocks today, investors and traders are essentially betting on the company's innovative mining methods, sustainability commitments and capacity to navigate the volatile crypto market over time.
Hut 8 Mining Corp (NASDAQ: HUT)
Market Capitalisation: US$0.66B
To wrap up this list of the best crypto mining stocks, we have to talk about Hut 8 Mining Corp, a Canadian crypto mining company and its controversial Bitcoin accumulation strategy. By subscribing to the BTC Hold On for Dear Life (HODL) mindset, Hut 8 owns more than 9,000 BTC as of March 2023. While crypto bulls and Bitcoin maximalists might applaud this behaviour, holding such large amounts of crypto can prove double-edged for HUT's share price as it buckles under financial duress. As Hut 8 struggles to stay in the black amid headwinds like fluctuating power costs and crypto market volatility, Hut 8 has been forced to dilute its shareholders to stay afloat. This saw management issue more than 70% of new shares in 2021, which puts a dampener on existing shareholders expecting exponential upside to HUT prices as Bitcoin prices appreciate. To ease growth concerns, Hut 8 recently revealed a transaction support agreement to potentially acquire assets of Validus Power Corp, which owns a mining facility in Ontario, Canada.
Future Outlook of Crypto Mining Stocks
Looking ahead, the best crypto mining stocks offer a unique investment opportunity with significant growth potential. As cryptocurrencies gain wider acceptance, the demand for mining operations is projected to rise, potentially leading to a surge in the value of these stocks. This upward trajectory is further supported by the continual technological advancements in this space, improving the efficiency of mining operations and thus, the profitability of crypto mining companies.
However, it's important to note that investing in crypto mining stocks also carries substantial risk. The cryptocurrency market is known for its volatility, with prices fluctuating wildly in short periods. This volatility is transferred to crypto mining stocks, making them a high-risk, high-reward investment. Also, regulatory uncertainties pose a major challenge, as prominent regulators like the SEC can significantly impact mining companies' operations. Therefore, while the future of crypto mining stocks holds promise, prospective investors must consider these risk factors carefully before diving in.
The Bottom Line
We hope this guide has helped you better understand whether a particular crypto mining stock suits your portfolio. The best crypto mining stocks ultimately offer investors a leveraged bet on the price of Bitcoin. However, crypto mining involves a significant amount of financial and regulatory risk. High up-front costs that crypto mining companies have to pay for specialised equipment expose them to operational inefficiencies and massive energy consumption and carbon footprint draw significant negative attention. Additionally, the inherently volatile nature of crypto is often magnified in crypto mining stocks. All in all, investors must consider the potential rewards of investing in crypto mining stocks and their associated risks.