Returns as of 03/21/2022
Returns as of 03/21/2022
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It’s hard to ignore the signs that Bitcoin ( BTC -0.92% ) is gaining mainstream acceptance. Retailers from cinema chains to grocery stores and others are starting to accept cryptocurrencies for payments. According to a Blockdata report, Bitcoin processed 62% more transactions by dollar value than PayPal ( PYPL -4.71% ) in 2021. Now, investors can benefit from bitcoin’s potential without ever owning a coin directly, thanks to bitcoin mining stocks.
Among the multiple bitcoin miners we will look at three in particular: Argo Blockchain ( ARBK -6.37% ), Hut 8 Mining ( HUT -2.25% ), and Riot Blockchain ( RIOT -0.15% ).
(Image source: Getty Images.)
We’ll look at each company’s operations, efficiency, potential growth, and a few intangibles. The company with the highest score at the end should take the pole position for investors to do further research.
The first comparison we’ll make between the three companies is their current in-service mining power, measured by exahashes per second. More power means faster calculations. Since the reward for bitcoin mining is based on solving a complex mathematical problem, the faster to the finish line, the better.
Hut 8 Mining
Mining Rate (EH/s)
(Data source: Argo, Hut 8, Riot financials. Table by author.)
Since the Argo figure comes from the end of October, and both Hut 8 and Riot are from the middle of November, we know this is a current comparison. Riot scores a 3, Hut 8 gets a 2, and Argo gets a 1.
A current leader is important, but it’s at least as important for investors to know who might lead in the future. Each mining company is forthright about what machines they are buying and what they expect their hash rate to be in the future.
(Source: Argo, Hut 8, Riot earnings. Chart by author.)
At first, this appears to be a decisive victory for Riot. However, investors need to remember that each company’s growth rate must also be considered.
Hut 8 Mining
EH/s one year growth
(Data source: Argo, Hut 8, Riot earnings reports. Table by author.)
Riot comes out ahead in both growth percentage and its final predicted EH/s rate. However, Argo actually expects to grow its mining rate faster than Hut 8. For this calculation, Riot scores a 3, Argo gets a 2, and Hut 8 gets a 1.
With the price of bitcoin over $50,000, it’s easy for investors to forget about the cost each miner pays to generate their profits. The most efficient miner makes more money per bitcoin, so potential shareholders should pay close attention to this metric as well. Mining companies use average cost per bitcoin mined as a point of comparison.
Hut 8 Mining
Average cost per bitcoin mined
(Data source: Argo, Hut 8 , Riot earnings reports. Table by author.)
In a somewhat surprising twist, the company with the smallest existing and planned EH/s rate is also the most efficient. Argo cam post such a low cost partly thanks to the company’s focus on renewable energy sources. The company’s facility in Quebec Canada primarily uses hydroelectric power, while its site in Texas takes advantage of the area’s extensive wind and solar power. Going green for Argo’s power needs is also providing more green for the company’s bottom line. This metric gives Argo a 3, Riot a 2, and Hut 8 a 1.
There are a few other considerations for investors that might not be obvious without some digging. Argo seems to have some catching up to do. The company has the smallest starting and smallest planned EH/s rates. However, Argo has begun construction of a new bitcoin mining facility it calls Helios, in Dickens County, Texas, that could change the company’s future.
The Helios facility will ultimately have access to up to 800 megawatts of power. If Argo were to use this entire amount, its Helios facility would become the largest bitcoin mining facility in North America. A power source this size would allow Argo to go far beyond the 3.7 EH/s that it has planned over the next year or so. This massive potential gives Argo a score of 3.
Hut 8 has two intangibles that investors should keep an eye on. First, the company has 10,000 highly efficient GPUs by NVIDA ( NVDA -0.80% ) that are being installed. These units are mining at a total cost of under $3,000 per bitcoin. Given that Hut 8 has the highest average cost per bitcoin of the three companies, this should help improve efficiency. Second, the mining company’s CFO, Shane Downey, said, “We have already surpassed our goal of 5,000 bitcoin held in reserve.” This is the largest amount of the three companies and could provide additional potential profits if the price of bitcoin continues to rise. The company’s huge bitcoin reserve gives it a score of 2.
Where Riot is concerned, the company presently uses about 200 megawatts of its power to mine bitcoin for other institutions. Riot runs the machines, pays out bitcoin to the other companies, and collects a percentage, plus enough to cover its costs. This decision technically lowers Riot’s risk: It will cover its costs, and receive a profit, even if the price of Bitcoin declines. However, using 200 megawatts of the 750 megawatts at North America’s largest bitcoin mining facility means nearly 27% of Riot’s largest asset is working for someone else. The inability to directly mine with 200 megawatts of power means Riot scores a 1 for this section.
The tally shows Riot scores the highest, based primarily on its current and projected lead in mining power. The company’s lead in these two segments gave Riot half of its points.
Hut 8 Mining
(Data source: article scores. Table by author.)
Each of these companies has the potential to be a good investment, with the obvious caveat that their values will be closely tied to the price of bitcoin. If you believe that bitcoin will continue to rise in the future, but want an alternative to holding the coin, this initial scorecard suggests starting your research with Riot Blockchain.
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Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 03/21/2022.
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Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns as of January 1, 2021.
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