Bitcoin has experienced significant growth in value this year, nearly doubling since the start of 2023. However, it is the publicly-traded Bitcoin mining firms that have proven to be the more profitable investment option. These mining companies have seen their share prices soar by over 100% since January 1, benefiting from the rising value of Bitcoin and positive developments in the industry.
Among the top performers is Marathon Digital (MARA), one of the largest public miners based on hashrate. Its shares have surged by 158% year to date. Similarly, renewables-focused Iris Energy (IREN) and Riot Platforms (RIOT) have experienced impressive growth, with their shares increasing by 168% and 186% respectively.
One of the key reasons for the profitability of mining companies is their role in the Bitcoin ecosystem. These companies earn money by using powerful and expensive computer equipment to mine the next block of Bitcoin. With each block, a fixed portion of new BTC is attached, and as the value of Bitcoin rises, so does the dollar-denominated value of their rewards and profits.
Bitcoin itself has seen significant growth in 2023, with a 90% increase in value so far. This rally can be attributed to several factors, including a series of U.S. bank failures in March that shook confidence in the traditional financial system. Additionally, excitement around the potential approval of a spot Bitcoin ETF before the end of the year has also fueled the rally. The involvement of BlackRock and recent crypto industry court victories have added to the anticipation.
Notably, Bitcoin-adjacent companies, such as GBTC, have outperformed Bitcoin itself. For example, GBTC shares have risen by 201% this year, surpassing the growth of Bitcoin. Coinbase (COIN), the only publicly traded crypto exchange, has also experienced considerable growth, with shares increasing by 129% in 2023.
Bitcoin-adjacent companies generally have a higher beta than Bitcoin, making them more susceptible to volatility in both directions. However, mining companies have taken significant steps this year to enhance their value proposition to investors.
One notable development is the investments made by companies like CleanSpark (CLSK) in the latest Bitcoin mining hardware. These investments have not only increased their capacity to mine new Bitcoin but also contributed to driving Bitcoin’s total hashrate to new highs. Additionally, these investments have lowered the cost of older mining hardware that has become less efficient over time.
Furthermore, mining companies are diversifying their operations beyond Bitcoin mining. Firms such as Iris, HIVE, Applied Digital, and others have expanded into cloud computing and high-performance computing services, leveraging their existing infrastructure. These companies claim that such services are more profitable per unit of energy compared to Bitcoin mining.
The profitability of Bitcoin mining companies has significantly outpaced the growth of Bitcoin itself. The rising value of Bitcoin, coupled with positive industry developments, has propelled the share prices of these companies. Their ability to adapt and diversify their operations also adds to their appeal as investment options.