Carlos Velásquez · Medium · 7 min read · Source: unsplash.com Gilly Berlin

Investors have been scooping up bitcoin. Their growing interest in acquiring it has caused the price of a bitcoin to increase from $7,200 at the start of 2020 to over $30,000 in 2021.

Given that miners earn bitcoins for performing the proof-of-work required to process transactions on the Bitcoin blockchain, they have been exceedingly profitable. (The higher transaction fees the blockchain charges during periods of congestion have also added to their profits.)

A December 28th tweet from glassnode noted that bitcoin miners recently earned $1 million per hour; a noteworthy amount since miners are now rewarded half as many bitcoins per block, compared to the last time (July 2019) they earned an equivalent hourly amount.

Glossnodes’ tweet provides evidence that mining bitcoin can be profitable. The cryptocurrency mining process, however, can also be expensive and may only occasionally result in a reward. The economic realities of cryptocurrency mining give some would-be entrants pause.

Fortunately for investors, four publicly listed companies represent an intriguing investment opportunity in the cryptocurrency mining space. In 2020, the returns their shareholders reaped were superior to those even bitcoin investors earned.

1. Riot Blockchain (RIOT)

Riot Blockchain is the largest publicly listed cryptocurrency mining company in North America, as measured by market cap. It mines bitcoin and litecoin. Last quarter its share price increased by 541%; bitcoin’s price rose by 177%; litecoin’s price rose by 181%. Since the beginning of the year, Riot Blockchain’s share price is up 57%.

Highlights

• Market cap: $1.8 billion
• Current hashrate: 0.25 EH/second
• Future hashrate: 3.80 EH/second (by October 2021)
• Mines bitcoins and litecoins

Interesting Fact

Riot Blockchain has small stakes in Verdy and TessPay (with initial investments of $200k and $100k, respectively). Verady provides global software platforms — such as cryptocurrency accounting, financial reporting, and accounting software tools — on a SaaS basis for companies in the blockchain industry. TessPay operates a payments platform that combines blockchain-based smart contracts and automated payments to guarantee daily settlements for wholesale telecom carriers. Verdy and TessPay give Riot Blockchain shareholders a modest exposure to the small but growing decentralized finance (“DeFi”) space.

2. Marathon Patent Group (MARA)

Marathon Patent Group is set to become the largest bitcoin mining company in North America by the end of December 2021, based on scheduled hashrate capacity additions. During the fourth quarter of 2020, its share price increased by 435%; bitcoin’s price increased by 177%. Since the beginning of the year, Marathon Patent Group’s share price is up 153%.

Highlights

• Market cap: $1.39 billion
• Current hashrate: 0.30 EH/second
• Future hashrate: 10.36 EH/second (by end of 2021)

Interesting Fact

On January 5, 2021, Marathon Patent Group reported that it had partnered with the Canadian blockchain platform company DMG Blockchain Solutions. The partnership will form a mining pool called Digital Currency Miners of North America, which “will be a U.S.-based non-profit entity whose mission is to create a better mining environment for North American miners, to help improve their financial performance, and to create North America’s first cooperative mining pool.”

3. Bit Digital (BTBT)

Bit Digital shares began trading again in early February 2020. It is a Nasdaq-listed bitcoin mining company headquartered in New York with miners located in China, Mongolia, and the United States. Its share price outperformed bitcoin’s price in every quarter of 2020. Since January 1st, Bit Digital’s share price has increased to as high as $33. It is currently trading in the $25 range.

Highlights

• Market cap: $1.2 billion
• Current hashrate: 2.25 EH/second
• Future hashrate: 2.25 EH/second (i.e. no reported planned hashrate change)

Interesting Fact

In addition to its bitcoin mining operations, Bit Digital expects to operate a car rental business through its Golden Bull USA, Inc. subsidiary once the Coronavirus pandemic is curtailed. Bit Digital also offers investors unique geographical (and geopolitical — i.e. China and Mongolia) diversification/risk that should be considered.

4. HIVE Blockchain Technologies (HIVE)

HIVE Blockchain Technologies’ operations mine bitcoins in Canada and Ethers (Ethereum) in Sweden and Iceland. It markets itself as owning “state-of-the-art green energy-powered data center facilities”. Last quarter its share price increased by 600%; bitcoin’s price rose by 177%; Ether’s price rose by 111%. Since the beginning of the year, HIVE Blockchain Technologies’ share price is up 78%.

Highlights

• Market cap: $918.2 million
• Current hashrate: 0.32 EH/second
• Future hashrate: 1.0 EH/sec (by the end of 2021)
• Mines bitcoins and Ethers

Interesting Fact

Hive Blockchain Technologies offers a diversified digital currency investment option in terms of geographical location (Iceland, Sweden, and Canada) and mining operations (bitcoins and Ethers). It also differentiates itself from other cryptocurrency miners by owning green energy-powered data centers.

Hashrate | Bitcoin Price: Place Your Bets

A Hash is a mathematical problem a miner’s computer must solve. The hashrate refers to the number of guesses, per second, a miner’s computer can attempt in order to solve the mathematical problem. The difficulty of mining a bitcoin is calibrated relative to the mining power that is active on the network; the difficulty of mining increases as the active hashrate increases.

The graph above illustrates the relationship between the price of bitcoin and the average hashrate per day. During the past three months, the average hashrate has ranged from 100 EH/second to 177 EH/second.

The four stocks covered herein currently control 3.12 EH/second of hashrate capacity. (Or no less than 1.76% of the daily average hashrate).

Excluding Bit Digital (BTBT), which has not reported plans to increase its hashrate, the remaining three companies currently control about 0.5% of the average daily hashrate but are set to increase their cumulative hashrate by 17-fold within the next 12 months.

Miners around the world may not be quick to match the planned capacity increases initiated by RIOT, MARA, and HVBTF, as foreign miners often face limited debt and/or equity financing options. If so, these three companies could be slightly better positioned to capitalize on future bitcoin price appreciation.

Regarding the future value creation of these four companies, consider the following:

• In 1995, 0.5% of the world’s population used the internet.
• In 2020, 60% of the world’s population used the internet.
• In 2020, 0.5% of the world’s population used bitcoin: Its price: ~$10k
• In 2021, 1.3% of the world’s population uses bitcoin. Its price: over $30k

If 60% of the world’s population eventually uses bitcoin, the profit miners earn will continue to increase. This scenario begs a question that investors should consider: what might the profit margins be for the likes of RIOT, MARA, BTBT, and HVBTF if 60% of the population is using bitcoin?

Depending on their answer, investors may want to consider placing bets on these four publicly listed cryptocurrency mining companies.

In doing so, they would effectively be placing a bet on the assets of the nascent blockchain ecosystem.

An ecosystem teeming with asymmetric risk-reward potential.

Author also wrote: N. Taleb’s Minority Rule | Your Inner Voice | Bitcoin’s Volatility | Blockchain Stocks | 50 Investment Lessons | Flywheel Effect | Bitcoin: Mental Framework | Crypto Moonshots | Bitcoin: Insurance | Brief History: Money | Spontaneous Order | Ackman’s $2.6B Moonshot | Fragility Inducing Events | Antifragile: Definition | 1% Bitcoin: 99% Cash | COVID-19: Market

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Disclaimer: Topics covered herein are for informational purposes. Before acting on investment information consult with a financial professional. This article is intended for people who understand the pro/con impacts of tail-risk, convexity, and asymmetric risk-reward in the context of an investment portfolio. The price of cryptocurrencies, and of the stocks associated with the companies that mine them, will likely remain volatile.