Bitcoin (CCC:BTC-USD) has taken a beating in the recent weeks and that has translated into an even-sharper correction for crypto mining stocks. While the coin has lost 14.2% of its value in the past month, the Viridi Cleaner Energy Crypto-Mining & Semiconductor ETF (NYSEARCA:RIGZ) has lost more than 24% in that time.
In general, investors have been embraced digital asset mining this year, with a whopping 217% rate of return in 2021 fueling more exposure, website Coin Rivet reported.
However, volatility in the world of cryptocurrency is nothing new. If we look at the broader picture, cryptocurrency adoption continues to increase. Further, governments are increasingly inclined to regulate cryptocurrency than to pursue a blanket ban on the industry.
Inflation fears remain elevated and with a limited supply, Bitcoin is considered among the inflation hedges. Even with the Federal Reserve talking about tapering and potential rate hike in 2022, real interest rates will remain negative in most parts of the world.
This is good news for Bitcoin as investors seek to diversify their portfolio. Therefore, the recent correction in the cryptocurrency is a good opportunity to accumulate. Additionally, in the regulated world, a good way for Bitcoin exposure is through mining companies.
That sentiment is evident in the recent filing by Van Eck for a proposed exchange-traded fund that would focus on equity investing in leading mining firms, rather than cryptocurrencies. Filing documents suggest the crypto mining ETF will closely mimic the MVIS Global Digital Asset Mining Index.
In the recent correction, I believe it’s a good opportunity to accumulate crypto mining stocks.
Let’s talk about four crypto mining stocks that look attractive for strong upside in 2022. These companies have big expansion plans, which would imply healthy top-line growth in the next two years. All are among the top 15 holdings of the RIGZ ETF cited above.
- Marathon Digital (NASDAQ:MARA)
- Riot Blockchain (NASDAQ:RIOT)
- Hive Blockchain (NASDAQ:HIVE)
- Hut 8 Mining (NASDAQ:HUT)
Best Crypto Mining Stocks to Buy: Marathon Digital (MARA)
After touching highs of $83, MARA stock has corrected sharply to current levels of $33.80. I believe that Marathon Digital is among the best crypto mining stocks to consider. For investors who are bullish on Bitcoin reversal, the stock looks undervalued.
A major reason to like Marathon Digital is the growth lined-up for 2022. To put things into perspective, the company reported a hash-rate — a measure of how fast a system can process a specific Proof of Work (PoW) algorithm — of 2.7EH/s as of Q3 2021. By mid-2022, the company expects to increase the hash-rate to 13.3EH/s.
The company estimates that at full capacity, its likely to mine 66 Bitcoins on a daily basis. Even if Bitcoin price of $45,000 is assumed, it would imply monthly revenue potential of $89.9 million. The annual revenue potential will be in excess of $1.0 billion.
It’s also important to mention that Marathon expects the Bitcoin production cost at $6,235. Therefore, the company is positioned for healthy EBITDA and cash flows even if Bitcoin trades around current levels.
Marathon is also well positioned from a financial perspective. The company has $623.7 million in cash. Additionally, with 7,649 Bitcoins on the balance sheet, the total liquidity buffer is $1.1 billion.
With aggressive Bitcoin mining through 2022, the company’s financial flexibility will increase further. This will support expansion and diversification activities beyond 2022.
Riot Blockchain (RIOT)
Riot Blockchain is another name that has significantly corrected from all-time highs. However, on a 12-month basis, RIOT stock is still higher by 120%. I believe that the current phase of correction provides a good entry point for healthy returns in 2022.
Riot is another company that has an aggressive growth plan for 2022. Currently, Riot has a mining capacity of 3.0EH/s. In the coming year, it’s expected that mining capacity will increase to 9.0 EH/s. Therefore, on an annualized basis, the company is positioned for three-folds increase in revenue.
From a cost perspective, Riot has a higher cost per Bitcoin mined as compared to Marathon. For Q3 2021, the company reported direct cost of $10,096. However, even with a relatively higher cost, the company reported revenue of $64.8 million and adjusted EBITDA of $37.6 million.
It’s likely that Bitcoin will trend higher in 2022. Even in the worst-case scenario, there is profitability and cash flow visibility.
It’s worth noting that Riot has also been active on the M&A front. In May 2021, the company acquired Whinstone US for a consideration of $80 million. The latter is the owner and operator of North America’s largest Bitcoin mining and hosting facility.
More recently, the company acquired ESS Metron, a producer of highly engineered electrical equipment solutions. This will help the company in scaling-up Bitcoin mining operations.
Overall, RIOT stock looks attractive at current levels and seems well positioned for a strong reversal rally in 2022.
Best Crypto Mining Stocks to Buy: Hive Blockchain (HIVE)
Among the small-cap crypto mining stocks, Hive Blockchain looks attractive. After touching highs of $5.75 in November 2021, HIVE stock halved and currently trades at $2.81. Some exposure can be considered to this diversified crypto mining company.
Hive has been on a high growth trajectory and the momentum is likely to sustain well into 2022. For Q2 2022, the company reported $52.6 million in revenue. There has been a four-fold growth in revenue since Q3 2021.
Another interesting point to note is that Hive Blockchain is involved in both Bitcoin and Ethereum (CCC:ETH-USD) mining. The company is diversified from this perspective.
Additionally, Hive Blockchain owns 4.9% stake in DeFi Technologies (OTCMKTS:DEFTF). This gives the company exposure to the high-growth decentralized finance industry. Furthermore, Hive Blockchain announced a strategic investment in Network Media Group. This gives the company exposure to the NFT business.
Coming back to growth, Hive is likely to have an annual revenue run-rate of $280 million. With Bitcoin and Ethereum mining expansion for 2022, the cash flow outlook is robust.
Overall, if sentiments remain bullish for Bitcoin and altcoins, I would not be surprised if HIVE stock delivers multi-fold returns.
Hut 8 Mining (HUT)
Hut 8 has also been pursuing aggressive growth and looks attractive among crypto mining stocks.
For Q4 2021, the company expects mining capacity in the range of 2.5EH/s to 3.0EH/s. However, with the expansion plans, mining capacity is likely to increase to 6.0EH/s by mid-2022. Therefore, Hut 8 is positioned for healthy revenue growth in 2022 and 2023.
In terms of power capacity, Hut 8 reported 109MW of capacity towards the end of 2020. Capacity is expected to increase to 144MW in 2021 and further to 209MW in 2022. This will be in-sync with the growth in hash-rate.
As of November 2021, Hut 8 reported Bitcoin holdings of 5,242 coins. With robust mining activity through 2022, the company is positioned for significant improvement in financial flexibility.
From a cost perspective, Hut 8 has already deployed high-performance NVIDIA chips. With these chips having low power intensity, the company’s cost per Bitcoin is approximately $3,000. This has translated into unit margin in excess of 95%.
Therefore, even with the recent decline in Bitcoin, Hut 8 looks attractive for healthy EBITDA and cash flows in 2022.
Overall, HUT stock has corrected sharply in the recent past. This looks like a good opportunity to consider some exposure for 2022.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.