The cryptocurrency space – which investors can gain exposure to through a range of asset classes, including digital currencies, exchange-traded funds (ETFs) and crypto mining stocks, among others – can best be described as volatile.
Take for instance the roller-coaster ride Bitcoin went on in 2021. The cryptocurrency entered the year trading around $29,000, rocketed its way north of $63,000 by mid-April, crashed back below $30,000 by mid-July before bouncing up to $69,000 by November and ending the year around $46,000.
That still worked out to an impressive year-over-year gain – and many on Wall Street see the momentum (and volatility) continuing for cryptocurrencies in 2022.
But what does this mean for investors in the broader crypto space?
One of the stronger plays, according to many Wall Street pros, is in crypto miners. “Cryptocurrency ‘mining’ is the process through which the blockchain is secured and new cryptocurrency coins are brought into circulation,” says Jefferies analyst Jonathan Petersen.
Mining can be very profitable, adds Petersen, especially for those companies that have numerous mining machines that are able to produce above-average hash rates (the power required to mine and process transactions on the blockchain).
“Crypto mining is a rapidly emerging space with huge upside, but it is risky,” says B. Riley Securities analyst Randy Binner. “While challenges exist, we see significant opportunities from current levels for miners that have infrastructure in place and can build scale,” he adds.
With that in mind, here are three top-rated crypto miners. The space is fairly limited at the moment, and even the best cryptocurrency miners are risky plays for investors and can be prone to wide and sporadic price swings. As such, we’ve decided to tap the TipRanks database; while Wall Street analysts have largely ignored the sector, we looked for those crypto mining names that have earned Buy ratings from the pros and offer significant upside potential. Let’s take a closer look.
Data is as of Jan. 18.
- Market value: $853.7 million
- TipRanks consensus price target: $10.00 (139% upside potential)
- TipRanks consensus rating: Moderate Buy
The smallest of the crypto miners on this list, as measured by market cap, is Bitfarms (BITF, $4.19). BITF provides the computing power to cryptocurrency networks, collecting fees for securing and processing transactions from each network. Additionally, its operations are powered by hydroelectricity, making its mining activities more environmentally friendly.
H.C. Wainwright analyst Kevin Dede is the only analyst to have weighed in with a recommendation, rating Bitfarms a Buy. Dede recently increased his price target on the stock to $10 from $8, implying potential upside of 139%.
“We remain decidedly bullish on the mining sector and Bitfarms’ positioning,” he says. This is due in part to what Dede calls a “highly favorable mining environment,” Bitcoin’s emergence as a “more versatile” inflation hedge than gold and crypto’s rising institutional relevance.
As for BITF, specifically, Dede adds that the stock is trading at a 30%-plus discount to its peers, even as the company “has direct visibility to twice the electrical power and comparable hash.”
Bitfarms currently has six total facilities following the late-2021 purchase of a new facility in Washington state – its first in the U.S. The crypto mining name should now have access to 404 MW (megawatts) of power capacity, the majority of which Dede expects to be online by the end of 2022. He believes this could support roughly 11 EH/s, assuming 3.8 kilowatts (kW) and 100 TH/s (terahash per second).
Plus, BITF management is vocalizing concerns about Bitcoin’s next halving in 2024 – something Dede has not heard discussed much across the mining community. “Managing for that scenario is critical,” the analyst says.
On top of this, Dede thinks that Bitfarms will continue to expand, while keeping the cost of power low and looking for compelling merger and acquisition (M&A) opportunities. Get the full scoop on Bitfarms stock.
Hut 8 Mining
- Market value: $1.0 billion
- TipRanks consensus price target: $19.52 (216% upside potential)
- TipRanks consensus rating: Moderate Buy
With multiple data mining centers and advanced computing infrastructure, digital asset mining name Hut 8 Mining (HUT, $6.18) boasts 109 MW of existing power capacity, enabling it to meet its partners’ cryptocurrency mining needs.
Hut 8 just got a thumbs-up from H.C. Wainwright’s Dede, who is optimistic about the mining player’s long-term growth prospects. He has a Buy rating on the crypto miner, and recently hiked his price target on the stock to $19 from $11.
What’s behind Dede’s bullish stance? “Hut’s transformation into an industrial bitcoin miner with diverse revenue streams and power sources from its 1,600 GH/s [gigahash per second] GPU fleet, hosting, lending and Validus power partnership, coupled with the 4.5 EH/s [exahash per second] of computer hash power owned or contracted and near-term access to 100 MW of Ottawa power,” he says. This will likely elevate the company above its historical 109 MW power capacity.
What’s more, the “name of the industrial mining game” is the ability to keep up with “bitcoin mining network growth” in a way that limits costs, Dede says. Although this reflects an “obstacle” for the space as a whole, he argues that Hut 8 has several ways to increase its self-mining. This includes the two significant miner purchases HUT made in the back half of 2021 which are expected to result in total hashing capacity of nearly 2.2 EH/s once deployed.
The analyst recently raised his fiscal 2022 revenue outlook for HUT (to C$299.8 million from $244.1 million). However, he called the guidance “conservative” and said he’s waiting to see how new machine deployment at the company’s Medicine Hat, Alberta, and North Bay, Ontario, locations unfolds.
Still, Dede isn’t alone in his outlook that HUT is one of the best crypto miners out there. Both pros that cover the stock call it a Buy, which translates into a Moderate Buy rating (simply given a lack of overall coverage). The average price target of $19.52 suggests a whopping 216% upside potential to current levels. TipRanks offers up a full analyst rundown of HUT shares.
- Market value: $2.7 billion
- TipRanks consensus price target: $64.25 (146% upside potential)
- TipRanks consensus rating: Strong Buy
Marathon Digital (MARA, $26.07) is working to become one of the largest cryptocurrency miners in North America. Its growth strategy is focused on increasing the hash rate to improve production and limiting the risk involved in the business by becoming more defensible against potential Bitcoin price drops.
H.C. Wainwright’s Dede has a Buy rating on MARA stock, as well as a $50 price target. Although this is the most conservative price target on the Street, the possible upside still clocks in at almost 92%.
According to Dede, the bitcoin mining name just took “two giant leaps” forward. For one, toward the latter half of last year, MARA announced “what may be the largest North American miner purchase order by hash in history.” This includes the acquisition of 78,000 Antminer S19 XP machines, valued at $879 million, which deliver approximately 140 TH/s each, or 10-11 EH/s total.
This, the analyst points out, is “more hash than two or three average institutional North American bitcoin mining rivals combined.” It also implies that Marathon’s total hash rate could reach 23.3 EH/s by early 2023.
Those following MARA may not be surprised by the acquisition, he adds. Marathon has been setting the bar for North American bitcoin hash build since December 2020, when it purchased 70,000 machines, producing roughly 10.36 EH/s.
The “second leap,” according to Dede is “the formation of a three-way joint venture between an unnamed green energy supplier in Texas, Compute North – Marathon’s hosting service provider for all machines outside of Hardin – and Marathon itself as the third member,” Dede commented. By teaming up with energy suppliers, MARA has created a foundation for ensuring it has sufficient power to run its 169,000-machine fleet.
Dede calls Marathon a “trailblazer in scale bitcoin mining deployment,” and highlights how its “gutsy commitment to all strategically tied constituents” has significantly benefited shareholders.
With this in mind, Dede expects the bitcoin network hash rate to reach 350 EH/s by the end of the year. For fiscal 2022, the analyst estimates that revenue will land at $969.3 million and earnings per share will come in at $6.46. This would mark solid growth over 2021, with analysts, on average, expecting MARA to post full-year revenue of $167.1 million and earnings of 3 cents per share.
“Important too, we think, is a peak at 2023, the year before the halving when bitcoin awards decline to 3.125 per block from the current 6.25,” Dede adds. “Given we garner little comfort in the expectation that transaction fees mitigate the decline, the next halving could begin to cull the industrial bitcoin mining herd that has evolved so rapidly over the past 12-18 months.”
Turning to the rest of the Street, MARA earns a Strong Buy consensus rating. And the average price target lands at $64.25, implying upside potential of 127%. See which other analysts are in the Marathon Digital Buy camp on TipRanks.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.