Why Crypto-Mining Stocks Are Soaring This Week

Several crypto-mining stocks surged sky-high this week. Measured from last Friday’s closing bell to today’s market open, data from S&P Global Market Intelligence shows Riot Platforms (RIOT 11.49%) gaining 23%, Marathon Digital Holdings (MARA 10.70%) rising by 28%, and CleanSpark (CLSK 32.86%) leading the pack with a 56% jump.

They all specialize in mining Bitcoin tokens, and the largest cryptocurrency’s price increased by 10% over the same period. Here’s why crypto-mining stocks outperformed the actual digital resource this week.

A week of wins: Analyzing crypto miners’ coordinated market leaps

CleanSpark is a special case this week, as you might have guessed from its massive price jump.

First, the company spent $23 million on two mining facilities in Mississippi and a third in Georgia, promising to boost CleanSpark’s total hash rate (a measure of computing power in the crypto-mining industry) by roughly 25% in the first half of this year. The stock closed 5% higher on Tuesday, when these facility purchases were announced.

Then, CleanSpark reported financial results for the first quarter of fiscal year 2024. Revenue increased by 166% year over year to $73.8 million and the adjusted bottom line swung from a $0.46 net loss per share to positive earnings of $0.14 per share. Your average analyst would have settled for revenue near $70.4 million and a net loss of $0.24 per share. That’s a blowout quarter by any measure, and CleanSpark’s stock shot 26% higher overnight.

Marathon and Riot had less newsworthy stuff going on. Both published January’s mining results on Monday morning, but their production volumes were down from December. Extremely cold weather in Texas and Nebraska prompted both companies to scale down their power consumption. Marathon and Riot shares fell 9% and 7% that day, respectively.

The two largest Bitcoin miners rode CleanSpark’s coattails on Friday, posting overnight gains of approximately 10% as investors saw their smaller rival’s stellar results as a bullish barometer for the crypto-mining sector as a whole.

How the halving will affect CleanSpark and friends

Behind these Bitcoin miner moves, Bitcoin itself is making a comeback from the pricing pressure that started as spot-price exchange-traded funds entered the market last month. Investors are looking forward to further price gains due to the halving of mining rewards in April, which reshuffles the economics behind crypto mining on a regular basis and tends to drive the digital currency dramatically higher over the following 18 months or so.

Lower mining rewards may sound like a challenge for Marathon, Riot, and CleanSpark, but they wouldn’t be in this business if they weren’t expecting this completely predictable cycle to come along every four years.

Indeed, CleanSpark CEO Zach Bradford expects the halving to clear out smaller mining operations with questionable economic models, leaving a greater percentage of global mining volume to true leaders — including his own company, of course.

“This organic growth in market share means we can capture a larger portion of Bitcoin rewards without additional infrastructure investments, leading to enhanced returns for our shareholders,” Bradford said in the earnings call. “Our obsession with preparation, our focus on efficiency will continue to drive down our production cost, especially when paired with our best-in-class power rates. Furthermore, this halving is not just a challenge, but a catalyst for positive price action in Bitcoin.”

This is all good news for Bitcoin miners in general, but still not a clarion call to double down on these investments. Among these three mining veterans, only CleanSpark’s shares are trading anywhere near its 52-week highs today and all three are down 70% or more from their peak prices in the last three years.

I see Bitcoin as a healthy addition to a diversified investment portfolio. Its miners can play a supportive role with a smaller, more speculative allotment. This week’s price jumps underscored the long-term potential in this corner of the cryptocurrency market, but also highlighted its inherent volatility. Please be careful out there, dear crypto investor.