Although Bitcoin has nearly doubled in value since the beginning of the year, another adjacent sector in the investment landscape has emerged as a more lucrative choice: mining companies.
Almost all publicly-traded Bitcoin mining companies have witnessed a surge of over 100% in their stock prices since January 1, driven by the combined factors of Bitcoin’s increasing value and favorable business advancements.
Bitcoin Miners vs. Bitcoin
Marathon Digital (MARA), one of the largest public mining companies by hashrate, has seen its shares rise by 158% year-to-date.
In the same period, rivals such as the renewable-focused Iris Energy (IREN) and Riot Platforms (RIOT) have witnessed even more significant gains, with increases of 168% and 186%, respectively.
Mining companies generate revenue by operating powerful and costly computer equipment to mine the next Bitcoin block, to which a fixed portion of new BTC is attached. Consequently, as the value of Bitcoin rises, the dollar-denominated worth of their rewards and, consequently, their profits also increases.
In 2023, Bitcoin has shown a remarkable 90% increase in value, driven primarily by a series of U.S. bank failures in March that shook confidence in the traditional financial system.
Furthermore, excitement surrounding the potential approval of a spot Bitcoin ETF before the year’s end, given applications from BlackRock and recent legal victories in the crypto industry, has fueled Bitcoin’s rally. Notably, Bitcoin surged by 5.6% to $31,600 on Monday when the Court of Appeals officially instructed the SEC to reconsider Grayscale’s (GBTC) Bitcoin ETF application. In a manner similar to mining companies, GBTC shares have also outperformed Bitcoin, with a rise of 201% this year.
Miners Getting Ready for the Halving
In a general sense, companies closely associated with Bitcoin exhibit higher beta values than Bitcoin itself, indicating their susceptibility to greater price volatility in both upward and downward directions. For instance, Coinbase (COIN), the sole publicly traded cryptocurrency exchange, has seen a 129% increase in its value this year.
However, the mining industry has taken unique steps this year to enhance its value proposition for investors. Firstly, companies like CleanSpark (CLSK), which has witnessed an 111% increase in its value, have announced substantial investments in the latest Bitcoin mining hardware. These investments have not only expanded their capacity to acquire new BTC but have also contributed to pushing Bitcoin’s total hashrate to new heights this year, reducing the cost of outdated mining hardware that has become less efficient over time.
Miners are also diversifying their operations. Numerous companies, including Iris, HIVE, Applied Digital, and others, have extended their activities beyond Bitcoin mining, venturing into cloud computing and high-performance computing (HPC) services using their existing infrastructure. Many of these firms have claimed that such services yield higher profits per unit of energy compared to Bitcoin mining.