In the dynamic realm of cryptocurrency, the age-old investment strategy of favoring pick-and-shovel manufacturers during a gold rush is currently unfolding, and Bitcoin miners like Marathon Digital Holdings and Riot Platforms are taking center stage. Their shares have markedly outperformed the leading digital currency, with gains surpassing 800% and 400%, respectively, for the year. Simultaneously, major players such as the US crypto exchange Coinbase Global and Bitcoin proxy MicroStrategy have seen impressive surges, each exceeding 350%, while Bitcoin itself has experienced a 160% increase in 2023.
Bitcoin mining involves an energy-intensive process wherein specialized computers validate transactions on the Bitcoin blockchain, earning rewards in the form of tokens.
The surge in these mining stocks aligns with the expansion of digital-asset mining companies, aiming to boost Bitcoin production in anticipation of increased demand if US regulators permit exchange-traded funds to directly hold the cryptocurrency. Bloomberg Intelligence analysts predict that the Securities and Exchange Commission may approve a spot Bitcoin ETF in the next two weeks.
Riot Platforms recently disclosed substantial purchases of mining machines, while Marathon, holding the top spot in computing power, acquired new facilities to enhance mining efficiency—a marked departure from its longstanding strategy as an asset-light mining company.
“Marathon Digital’s announcement of acquiring new sites last week could lead to stronger mining efficiency metrics,” noted Brian Dobson, managing director of equity research at investment bank Chardan. “That’s what the investors are focused on.”
Marathon has witnessed gains for 11 consecutive trading sessions, more than doubling during this period to $31.07. The stock had traded at over $80 when Bitcoin reached its record high in November 2021.
If the rally persists, mining stocks could encounter additional buying pressure and a short squeeze, propelling prices even higher, as suggested by Ihor Dusaniwsky, managing director of predictive analytics at S3.
Contrary to the prevalent trend of cryptocurrencies starting the year at their lowest levels due to industry scandals and bankruptcies, most crypto stocks, including Marathon, have experienced significant positive movement. According to Dusaniwsky, the recent price move was fueled by long buying pressure rather than short covering from a short squeeze.
The CoinShares Blockchain Global Equity Index is marking a 29% increase in December, poised to achieve its best month on record.
