On the last day of 2020, bitcoin soared to as high as $29,292. Now itâ€™s more than $39,000. The writing is on the wall. Not since 2017 has cryptocurrency experienced such a banner year. Itâ€™s no wonder that investors are on the lookout for crypto mining stocks to buy so they can play this red-hot trend.
As economies around the world struggled with the novel coronavirus pandemic, bitcoin quadrupled in value in 2020. However, opinions remain divided on whether cryptocurrencies are an effective hedge against dollar weakness and inflation risk due to their speculative nature.
But one thing is for certain, as prices continue to soar, bitcoin-mining devices will become more difficult and expensive to obtain. Thatâ€™s why crypto mining stocks have become a safe way to buy into the industry.
In a bull market, these companies give you the opportunity for outsized returns. When things turn pear-shaped, they will continue to deliver respectable profits.
Here are three names that you should keep on your watchlist this year:
Crypto Mining Stocks to Buy: Riot Blockchain (RIOT)
RIOT stock gained nearly 1,500% in 2020, handily outpacing the 314% gains made by bitcoin during the same period. On Dec. 21, the company said it would spend $35 million to acquire more mining capacity, known as Bitmain Antminers, bringing its equipment to approximately 37,000 miners.
RIOT finances its new miner purchases through available working capital and does not have any long-term debt.
There was a lot of skepticism when the company shifted from a biotechnology company to a digital currency miner back in 2017. However, it now boasts a market cap of $1.15 billion, up from approximately $27 million a year ago.
Sales are expected to grow 412.5% next year. That may seem ambitious. However, this is a company that has beat analyst estimates in five of the last six quarters. RIOT is forecasting profitability next year and will play a significant role in maintaining bitcoinâ€™s network.
Bit Digital (BTBT)
Bit Digital is engaged in the bitcoin mining business across facilities in the U.S. and China. It operates 1,250 PH/s bitcoin hash power based on 22,869 mining rigs in operation, including 16,944 acquired during the third quarter.
In February 2020, the company started to shift its focus on bitcoin mining. As part of the initiative, the emerging bitcoin miner officially changed its name from Golden Bull Limited to â€œBit Digital, Inc.â€� on Sep. 14. BTBT stock gained 5,383% last year, with the bulk of gains coming after the strategic shift.
But itâ€™s also important to give Bit Digital credit where itâ€™s due. In the third quarter, the revenue from bitcoin mining was $7.91 million, and the number of bitcoins was 814.23. BTBTâ€™s latest reported 40,865 mining rigs in current operation is also greater than Marathon Patent Group, Riot Blockchain, and CleanSparkÂ (NASDAQ:CLSK). MARA is the closest competitor, with 33,560 announced machines.
The company has done well to position itself as one of the preeminent crypto mining stocks you should buy. And even though BTBT stock trades at a price-sales multiple of 38.5x, itâ€™s still reasonable to compare that with RIOT, for example, which trades at 70.4x.
Marathon Patent Group (MARA)
MARA stock has swung wildly this year and is perhaps the riskiest of the stocks we are analyzing. Still, shares of the cryptocurrency mining company are up 1,047% in the past six months. So, while it remains a remains speculative play, it certainly warrants attention as a pioneer in this emerging market segment.
Marathon reported its Q3 earnings with a diluted GAAP EPS loss of 28 cents per share on $835,184Â in revenue, a rise of 160% year-over-year. The loss is attributable to investment activities, as a result of which it will have 33,560 machines next year. Current cash stands at $27.1 million, and there is no debt on the balance sheet.
MARA stock will rise alongside bitcoin prices, and the positive momentum in the asset class will be the principal reason behind the stockâ€™s growth. That doesnâ€™t mean that itâ€™s a bad investment by itself. Just that the extreme level of volatility in the cryptocurrency experience will be intrinsically linked to MARAâ€™s fortunes, more so than the others on this list.
Shares have a beta of 1.69, indicating that the securityâ€™s price tends to be more volatile than the market.
For the time being, the higher pricing environment for bitcoin is extremely favorable for MARA stock, leading to higher margins and stronger returns. As the company builds out its inventory of specialized computer hardware equipment, expect to see continued upside from this one.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.Â
Faizan is a contributing author for InvestorPlace.com and numerous other financial sites. A former data journalist at S&P Global Market Intelligence, heâ€™s passionate about helping retail investors make more informed decisions regarding their portfolio.
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