In the world of cryptocurrencies, the investment strategy of backing the tools and tech behind the boom resembles the historic gold rush tactic of investing in pick-and-shovel makers.
Bitcoin mining companies like Marathon Digital Holdings and Riot Platforms are outpacing the growth of the leading digital currency. They’ve surged by over 800% and 400%, respectively, this year. Similarly, US crypto exchange Coinbase Global and Bitcoin proxy MicroStrategy have seen jumps of more than 350%, while Bitcoin itself has risen around 160% in 2023.
Bitcoin mining involves high-energy processes where specialized computers validate transactions on its blockchain, earning rewards in tokens.
The rise in these stocks aligns with mining companies scaling up operations to boost Bitcoin production, anticipating increased demand if US regulators approve direct holding of the cryptocurrency in exchange traded funds. Bloomberg Intelligence analysts predict SEC approval for a spot Bitcoin ETF within the next two weeks.
Riot Platforms recently announced substantial mining machine purchases, while Marathon, the biggest miner by computing power, acquired new facilities to ramp up efficiency, a notable shift from its previous strategy.
Investors are particularly focused on Marathon Digital’s recent acquisition of new sites, anticipating stronger mining efficiency, as per Brian Dobson, managing director of equity research at Chardan.
Marathon’s stock has surged for 11 straight trading sessions, more than doubling in value to $31.07. It previously traded at over $80 during Bitcoin’s peak in November 2021.
There’s a possibility of more buying pressure and a short squeeze on mining stocks if the rally persists, potentially driving prices even higher, according to Ihor Dusaniwsky, managing director of predictive analytics at S3.
Most crypto stocks, like cryptocurrencies themselves, began 2023 at yearly lows following industry scandals and bankruptcies, making them attractive for betting against.
According to Dusaniwsky, the recent price movement wasn’t solely due to covering shorts but stemmed from increased buying pressure. If MARA maintains its upward trend, more short covering and a definite short squeeze could follow.
The CoinShares Blockchain Global Equity Index is on track for its best month on record, marking a 29% surge in December.
