With the rise in bitcoin prices and other similar assets, there has been more interest in crypto mining stocks. The investment thesis is that the market is still in the early stages and will see explosive growth in the years ahead.
Consider that the opportunities are not just for the currency play. Underlying technologies like blockchain have wide-scale applications. This is why large companies like IBM (NYSE:IBM), DocuSign (NASDAQ:DOCU) and Nvidia (NASDAQ:NVDA) have been investing in this market.
Yet there are also major risks with crypto mining stocks. Of course, there is usually much volatility and difficulties with coming up with accurate valuations.
“Overall, there is still relatively little known regarding how to best value and price cryptos,” said Joshua Della Vedova, assistant professor of finance at the University of San Diego School of Business. “This is due to its unclear fundamental value, the structural difference in coins and blockchains, the ineffectiveness of technical analysis and the limited successful academic enquiry. Cryptos remain difficult to value and will, I suspect, remain so until they are adopted en masse by the mainstream and professional investor.”
But for mining companies, there are other challenges to consider. For example, the electricity costs are heavy and can make it difficult to achieve profitability. There are also issues with the uncertainty about government regulations and potential tax liabilities.
Yet despite all this, there is probably opportunity for investors with crypto mining stocks. This will likely be the case if the prices keep rising.
So then, let’s take a look at three operators:
- Marathon Patent Group (NASDAQ:MARA)
- Riot Blockchain (NASDAQ:RIOT)
- Hive Blockchain Technologies (OTCMKTS:HVBTF)
Crypto Mining Stocks: Marathon Patent Group (MARA)
Marathon Patent Group has had a winding journey as a public company. It originally started as an exploration operation for uranium and vanadium in 2010. Then a few years later, the company went into the California real estate business. And when this did not pan out, Marathon went into the IP (intellectual property) business.
And of course, during the past couple years, the company pivoted again to crypto mining. And as should be no surprise, MARA stock has been quite volatile along the way.
Currently the focus is on Bitcoin. But the company has plans to move into other cryptocurrencies, like Ethereum.
The mining operations are primarily in North America, which has higher electricity prices. But Marathon has been engaging in aggressive deal-making to build more scale and breadth to its platform. Another important factor is that the company recently raised $6.9 million in a secondary offering.
As I noted in a recent post for InvestorPlace.com, though, I believe MARA stock may be worth a consideration for a short-term play. It could be a good way to benefit from the volatility in the bitcoin market.
Riot Blockchain (RIOT)
Riot Blockchain has been in the cryptocurrency mining business since late 2017. Before this, the company was in the medical devices industry.
As with other crypto mining stocks, RIOT stock has been a roller coaster. Since March, the shares have gone from 70 cents to $3.80. But they have since backed off to $3.05.
For the first half of this year, the revenues increased from $3.8 million to $4.3 million and the mining margin was 33.5%, up from 20.5%. The company’s mining systems are primarily next-generation Bitmain S19’s and S19 Antminer Pros.
The company has been focused on getting lean, such as by cutting back on SG&A (sales, marketing and administrative) costs. For the first half of this year, they went from $5.1 million to $3.6 million.
But this was not the only cost-cutting measure. Keep in mind that the company has relocated to new facilities and there has been a co-location agreement with Coinmint.
The company also has a decent amount of liquidity. Note that there is $16.4 million in the bank. In other words, there should be enough resources to invest in capacity and to pull off some tuck-in acquisitions.
Hive Blockchain Technologies (HVBTF)
Among the crypto mining stocks, Hive Blockchain Technologies is one of the riskiest. First of all, the company trades on the over-the-counter bulletin market, which generally has less liquidity and looser requirements. HVBTF stock is also trading at a mere 32 cents.
But hey, sometimes these penny stocks can get lots of traction and generate quick returns. Yet investors still need to be very wary.
Hive owns and operates next-generation crypto mining facilities in Canada, Sweden and Iceland. They produce primarily Bitcoin and Ethereum. The company’s hardware includes both high-end GPUs (graphics processing units) and cloud-based ASIC mining systems.
In the latest quarter, Hive reported digital mining income of $5 million and the gross margin was about $3.8 million, with net income at $3.4 million. The output included 23,175 Ethereum, 33,190 Ethereum Classic and 127 Bitcoin.
All in all, Hive is fairly liquid. Note that the working capital is $11.8 million.
One key is that Hive has been nimble. The company was smart to restructure operations in Sweden to lower costs but also to pull back from bitcoin. There has also been the use of hedging contracts to deal with electricity expenses.
But again, the risks are still significant. This is the case with all crypto mining stocks. So, if you are thinking of investing, it’s a good idea to focus on that part of your portfolio reserved for speculative investments.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.