Bitcoin Mining Stocks: Why They Outperformed Bitcoin in 2023

The world’s first Bitcoin mining IPO occurred in 2016. Since then, Bitcoin mining stocks have gained interest. These stocks represent companies that operate large-scale facilities to mine Bitcoin, the top cryptocurrency by market capitalization. In 2023, Bitcoin mining stocks outperformed Bitcoin itself by a wide margin, generating impressive returns for investors. But what are the reasons behind this success? And how do Bitcoin mining stocks compare to Bitcoin as an investment option? This blog post will dive into these questions and more.

KeyTakeaways:

• Bitcoin mining stocks performed exceptionally well in 2023, with an average year-to-date return of 257.14%, compared to Bitcoin's return of 87% (as of H1).

• Factors behind the success of Bitcoin mining stocks include rising demand for Bitcoin, and the expansion and innovation of mining companies under a regulated framework.

• Bitcoin mining stocks offer some advantages over Bitcoin, such as lower volatility, higher liquidity, regulatory compliance and exposure to other business segments.

Understanding Bitcoin Mining and Bitcoin Mining Stocks

Bitcoin mining is the process of validating transactions and creating new bitcoins using specialized hardware and software. Miners compete with each other to solve complex mathematical puzzles that require significant computing power. The first miner to solve the puzzle adds a new block of transactions to the Bitcoin blockchain, the distributed ledger that records all transactions. In addition, the miner receives a reward in the form of newly minted bitcoins and transaction fees.

The term “Bitcoin mining stocks” refers to shares of publicly traded companies that derive most of their revenue and profits from Bitcoin mining operations. These companies typically engage in activities such as creating and operating Bitcoin mining farms, producing and selling mining hardware and equipment, and providing related services for Bitcoin miners. Investing in these stocks can be a way to gain exposure to the crypto world without the associated risks of directly owning cryptocurrencies.

The Performance of Bitcoin Mining Stocks in 2023

Despite the volatility and uncertainty in the crypto market, Bitcoin mining stocks had a stellar performance in 2023. According to data from Cointelegraph, the average year-to-date stock price gains in 2023 among the top nine public Bitcoin mining firms by market capitalization was 257.14%. This figure is almost three times higher than Bitcoin's price gain in the same period. 

Factors Behind the Success of Bitcoin Mining Stocks

Several factors contributed to the success of Bitcoin mining stocks in 2023. 

• Bitcoin price movement: The price of Bitcoin (BTC) significantly impacts the profitability of mining operations and, consequently, the stocks of mining companies. When Bitcoin's price rises, mining becomes more profitable, driving up mining stock prices as well. Bitcoin’s value had appreciated by around 87% year-to-date by the end of June.

• Favorable mining conditions: Bitcoin mining stocks benefited from cooling energy prices in 2023. The high energy prices that plagued miners in 2022 (due partly to the war in Ukraine) had subsided as much as 72% by the first half of 2023. This relief in energy costs positively impacted miners' operational expenses and profitability.

• Expansion of mining companies: Public Bitcoin mining companies made aggressive moves in 2023, signaling long-term confidence in the industry. They invested heavily in expanding their mining capacity, acquiring new hardware and software solutions, securing cheap and renewable energy sources and diversifying their revenue streams. For instance, Riot Blockchain splurged $163 million on new ASICs to significantly boost their production.

• Market sentiment: Positive market sentiment, driven by factors such as continuous network growth, infrastructure investments by miners and confidence from long-term Bitcoin holders, played a role in the success of Bitcoin mining stocks in 2023. 

• Hash rate: The existing hash rate — that is, the computational power dedicated to mining — plays a role in valuing mining stocks. Companies with high hash rates are more likely to generate bitcoins, enhancing their appeal for investors. Florida-based Marathon Digital could produce about 7 exahashes per second (EH/s) in January. By August, they had boosted their hash rate to 23 EH/s.

Bitcoin Mining Stocks vs. Bitcoin

Buying Bitcoin mining stocks and purchasing Bitcoin are both ways to invest in crypto, but they have some key differences. 

• Volatility: Bitcoin mining stocks tend to be less volatile than Bitcoin’s price, since other factors — the performance of the broader stock market, the earnings and growth prospects of mining companies and the supply and demand dynamics of the mining industry — influence them. Conversely, Bitcoin is more susceptible to price swings due to market sentiment, news events, technical factors and speculation.

• Regulatory compliance: Bitcoin mining companies tend to be compliant with the regulatory requirements of the jurisdictions in which they operate, as they’re subject to the oversight and rules of their stock exchanges and securities regulators. They must also follow their respective countries' accounting standards and reporting obligations. Bitcoin, on the other hand, is largely unregulated and decentralized, which poses some legal and tax challenges for investors.

Advantages of Investing in Bitcoin Mining Stocks

Investing in Bitcoin mining stocks can offer some advantages over investing in Bitcoin directly.

• Lower risk: Investing in Bitcoin mining stocks can lower the risk of losing money from hacking, theft, fraud or technical glitches that affect crypto exchanges or wallets. Mining stocks may be less affected by regulatory crackdowns or bans on crypto activities in certain countries, unless the crackdown directly affects mining operations.

• Higher returns: Investing in Bitcoin mining stocks can provide higher returns than investing in Bitcoin itself, especially during bull markets. This is because mining stocks have historically had a leveraged beta effect, which means they tend to outperform Bitcoin when its price rises and underperform when its price falls.

• Access: Investing in Bitcoin mining stocks can be easier than investing in Bitcoin itself because it doesn’t require setting up a crypto account or wallet, buying or selling crypto on an exchange or dealing with complex tax issues. Mining stocks can be bought or sold using a traditional brokerage account or an online trading platform.

7 Best Bitcoin Mining Stocks in 2023

The best Bitcoin mining stocks in 2023 have shown strong performance, profitability, growth potential and innovation. Based on these criteria, here are seven top picks for 2023.

Riot Platforms Inc (RIOT)

Riot Platforms, a Texas-based Bitcoin mining company, boasts an impressive hash rate capacity of 10.7 EH/s and operates a 700-megawatt (MW) facility, making it the single largest in North America. In Q2 of 2023, the company successfully mined 1,775 BTC, with a low production cost of $8,389 per Bitcoin. It reported record revenue of $76.7 million in the last quarter, and experienced a remarkable year-to-date price surge of 234.8%, closing at $11.35 on August 31.

Marathon Digital Holdings Inc (MARA)

Also based in the United States, Marathon Digital Holding mined 2,926 BTC in the second quarter of 2023, boasting a hash rate capacity of 17.7 EH/s. Marathon Digital has enjoyed an impressive 267.5% increase in share price this year, and reported a revenue of $81.8 million in the second quarter. The company's primary objective is to become North America's largest and most environmentally conscious Bitcoin miner.

Hut 8 Mining (HUT)

Based in Alberta and Ontario, Hut 8 Mining operates with a hash rate capacity of 2.6 EH/s. In the second quarter of 2023, they mined 399 BTC and reported a revenue of $19.2 million. 

The company has experienced an impressive year-to-date increase in share price of 185.9%, closing at $2.43 as of August 31. Hut 8 is committed to expanding its mining capacity and diversifying its revenue streams through yield farming and staking.

HIVE Blockchain Technologies Ltd. (HIVE)

Hive Blockchain Technologies, another Canadian company, is dedicated to mining Bitcoin and Ethereum using sustainable energy sources like hydroelectricity and geothermal power. In the second quarter of 2023, the company mined 834 BTC with a hash rate capacity of 3.3 EH/s, generating a revenue of $23.6 million. 

Bitfarms Ltd. (BITF)

Operating in Québec and Argentina, Bitfarms Ltd., a leading Bitcoin mining company, currently boasts a mining capacity of 5.3 EH/s. During the second quarter of 2023, the company mined 1,223 BTC, with total earnings of $35 million. Bitfarms has made significant strides in the stock market, experiencing a 209% year-to-date increase in share price. The company is leveraging low-cost renewable energy sources to target mining capacity expansion to 7 EH/s by the first quarter of 2024.

Argo Blockchain PLC (ARBK)

Based in the United Kingdom, Argo PLC is a Bitcoin mining company that operates in Texas and Québec. It has achieved a total hash rate capacity of 2.6 EH/s, and in the first half of 2023, it successfully mined 947 BTC. Argo Blockchain reported a revenue of $24 million in the first half of 2023. The company aims to become one of the biggest and most eco-friendly Bitcoin miners worldwide by implementing renewable energy sources and carbon offsetting programs.

CleanSpark Inc (CLSK)

CleanSpark, a leading provider of energy management and Bitcoin mining software solutions based in the United States, has reported impressive growth during the third quarter of fiscal year 2023. The company operates several mining facilities, and boasts a hash rate capacity of 9.3 EH/s, mining a total of 4,729 BTC for CY 2023. CleanSpark generated a revenue of $45.52 million in Q3. 

The company remains committed to improving its mining efficiency and sustainability by utilizing microgrid technology and renewable energy sources. It has received full funding to expand its facilities to hit a target of 16 EH/s operational hash rate by the end of 2023.

Summary: The Dominance of Bitcoin Mining Stocks

Bitcoin mining stocks have emerged as a dominant force in the crypto space, outperforming Bitcoin by a wide margin in 2023. These stocks offer investors a way to gain exposure to the growing demand for Bitcoin under a regulated framework. Bitcoin mining stocks offer some advantages over Bitcoin, such as lower volatility, higher liquidity, regulatory compliance and exposure to other business segments. However, investing in Bitcoin mining stocks is not without risks. Therefore, when making investment decisions, consider operational issues, environmental concerns, competition and regulatory uncertainty.