For many, investing directly in cryptocurrencies can seem inherently risky. After all, most cryptos don’t have much backing for their value beyond investor interest. Once the excitement dies down or funding dries up, many crypto projects simply cease to exist, leaving casual retail investors holding the bag. However, there may be a safer way to invest in the cryptocurrency industry as a whole. Enter these crypto mining stocks.
In the case of Bitcoin (BTC-USD), the crypto itself cannot exist without an entire industry of computer farms and integrated circuits extracting it. Thus, investing in the industry that drives the availability of crypto is a good way to insulate from the inherent risk of the currency itself.
For investors looking to invest in crypto mining stocks, there are two primary criteria to focus on. The first is the profitability and efficiency of how the miners do it. The second is by how the company manages its Bitcoin reserve once extracted. That’s because these two factors directly command the company’s revenue and liquidity.
Riot Platforms (RIOT)
A longstanding contender in the Bitcoin mining race, Riot Platforms (NASDAQ:RIOT) has been in the news lately for its expansion attempts. Recently, RIOT has been working to acquire one of its main rivals, Bitfarms (NASDAQ:BITF) which has resulted in RIOT taking on 12% ownership of the smaller firm. In an attempt to resist, Bitfarms has elected to take on a poison-pill approach to dilute Riot’s control and make it easier for other shareholders to gain more control.
While it’s hard to say what the outcome will be, it’s a win-win situation for Riot Platforms holders. That’s because even if it fails, RIOT will be left flush with cash it was planning for a buyout, meaning its reserves will stay full. This bodes well for its long-term stability and weathering any economic downturns regarding Bitcoin.
Moreover, the company’s Bitcoin mining revenue jumped 55% from $48 million to $74.5 million year-over-year for Q1 2024. This underscores the company’s strategy of keeping cash flow strong, which will be even more the case if it integrates Bitfarms.
Hut 8 Mining (HUT)
When a company increases quarterly revenue year-over-year but still focuses on decreasing expenses, no one wins more than the shareholders. This is exactly the trajectory that Hut 8 Mining (NASDAQ:HUT) is on with this current focus on cutting costs. The decision to do so comes as a result of the company’s all-stock merger with USBTC, which made it flush with proprietary software and operational principles.
As a result, Hut 8 has been able to single out its Drumheller facility as a high-cost and low-efficiency site for Bitcoin mining, ultimately deciding to close it back in March 2024. In the same month, HUT announced its first quarter financials for 2024 with an impressive $30 million in Bitcoin mining revenue. That represents a stunning 300% increase year over year from $87.6 million in revenue in March 2023.
Beyond a strong cash flow and savvy facility management, the company’s extensive holdings in Bitcoin have given it the necessary capital to upgrade its aging Bitcoin infrastructure. This protects investors from the potential worries that some analysts have had surrounding hut, eights, and long-term market share prospects.
Valkyrie Bitcoin Miners ETF (WGMI)
One way to hedge against the competitive nature of the bitcoin mining industry is to invest in an aggregate exchange-traded fund (ETF) of all of its various competitors. This is the advantage that the Valkyrie Bitcoin Miners ETF (NASDAQ:WGMI) offers investors who are looking for exposure to the industry without betting directly on any one company’s operations.
Beyond just offering exposure to mining companies, WGMI also offers some buffer to its value by holding auxiliary contributors to the industry. This means 17% of its current composition is companies like Nvidia (NASDAQ:NVDA) and CleanSpark (NASDAQ:CLSK).
Over the last couple of years, the stock has underperformed the S&P 500 by 22%, yielding 17% losses for the index’s 5% gain. However, this can be attributed to a relatively nascent crypto industry, which may change depending on the political attitudes surrounding Bitcoin. As a result, WGMI represents the overall attitude of the markets toward cryptocurrency. Make the smart play and grab these crypto mining stocks.
On the date of publication, Viktor Zarev did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.