The year 2023 has seen a significant surge in the stocks of Bitcoin mining companies. As the price of Bitcoin has risen, so has the market performance of these mining stocks.
However, investing in Bitcoin mining stocks goes beyond just considering the price of Bitcoin. There is a crucial metric that can help investors determine which mining stocks are worth buying.
One important factor to consider is Bitcoin production capacity. Bitcoin miners make money by mining as much Bitcoin as possible, especially when the price of Bitcoin is increasing. Therefore, the focus in 2023 has been on analyzing overall production capacity.
There are multiple ways to assess production capacity. One method is to look at the amount of Bitcoin mined each month. Publicly traded Bitcoin miners provide monthly production updates, allowing investors to quickly gauge their production levels over a 30-day period. Additionally, factors such as the number of mining rigs in operation and the upcoming mining rigs set to come online can be considered. Hash rate, which measures the computational power used in mining Bitcoin, is another metric to analyze.
In 2023, the key takeaway is that bigger production capacity is seen as better. The strategy has been to invest in companies that mine the most Bitcoin.
However, the narrative around Bitcoin mining stocks could change in 2024 due to the anticipated Bitcoin halving event in April. This event occurs every four years and cuts the reward paid out to Bitcoin miners by 50% for mining a single block of Bitcoin.
The upcoming halving will have significant repercussions for Bitcoin miners. Miners will earn half as much money for the same amount of work, leading to a potential 50% reduction in their earnings. This change introduces severe income stress for mining operations.
For investors, this means that the average cost to produce a single Bitcoin becomes the magic number when evaluating Bitcoin mining stocks. The lower the production cost, the better. Investing in companies that are streamlined, efficient, and prepared for income stress becomes crucial.
One company that stands out in terms of operational efficiency is Riot Platforms. In the second quarter of 2023, Riot Platforms had the lowest Bitcoin production costs in the industry, with an average cost of only $8,389 per Bitcoin. This figure shows not only the company’s efficient operations but also its ability to improve efficiency over time.
In summary, the average cost to produce a single Bitcoin becomes a significant metric for evaluating Bitcoin miners. While the amount of Bitcoin produced remains important, it is essential for companies to be profitable on every coin they mine. In 2024, only the most cost-effective Bitcoin miners with low production costs are likely to survive. As such, focusing on Bitcoin mining stocks with operational efficiency becomes crucial for investors.