The opening months of 2021 have become a key inflection point in the evolution of cryptocurrencies. Propelled by investor confidence and concerns about global monetary expansion, cryptocurrencies like Bitcoin have surged in value over the last three months. In April, Bitcoin surpassed a share price of $60,000 for the first time.
The decentralized nature of cryptocurrency, which makes it a conduit for exchange unconstrained by the whims of regulators, complicates the ease with which hungry investors can procure additional shares.
“Bitcoin are created through a mining process utilizing specialized hardware. Mining has grown from individual operations in houses and offices, to publicly traded companies operating at an industrial scale” said Ari Stiegler, an early investor in cryptocurrency technology and managing partner at VC firm Flux Capital. “Highly-specialized computer programs, called miners, add transactions and provide security to the Bitcoin blockchain – which is how new Bitcoin enter the market.”
Mining, though, is no simple process; it requires the use of powerful computers capable of solving complex equations. In many cases, these systems require significant electricity inputs, incurring material energy costs for miners, Stiegler explained.
“Third-party mining companies are working to make this model more cost-effective by co-locating mining activity next to cheap sources of electricity such as hydroelectric powerplants,” said Stiegler.
Stiegler pointed to Marathon Digital Holdings (NASDAQ: MARA) as a leader in this campaign, which some have dubbed a BTC mining arms race.
“Marathon, which was one of the first NASDAQ-listed cryptocurrency mining companies, is building the largest self-mining operation in the United States, with a specific focus on lowering the costs of energy inputs,” Stiegler said. “Based in Las Vegas, Marathon has plans for more than 103,000 miners – which amounts to more than 6 percent of the global Bitcoin hash rate – producing 55-60 Bitcoin per day. This success has helped Marathon lower its energy costs to only $0.028/kWh.”
Marathon stock has increased meteorically. In April 2021, MARA traded for nearly $40 a share – up from only $0.91 per share last spring. As Bitcoin continues to expand, some investors have preferred to acquire shares in mining services like Marathon over shares in BTC itself.
According to Stiegler, this optimism is driven by two factors: growing confidence in Bitcoin, and Marathon’s large economies of scale enabling some of the lowest production costs in North America.
“Bitcoin has risen dramatically in value in 2021,” said Stiegler. “If the share price of BTC were to hold steady at around $40,000, Marathon’s well-scaled mining capability will continue to yield approximately $60 million per month in gross profit until more mining capacity comes online worldwide. Coupled with the expanding appeal of BTC, which more than one-third of institutional investors now back, this system will be poised for long-term growth.”
Stiegler said that scale is at the center of Marathon’s efforts and represents a critical mechanism for ensuring long-term viability.
“By increasing the Bitcoin hash rate to augment production and mitigating underlying risks by becoming more resilient to fluctuations in the price of BTC, Marathon is working to produce more BTC with less energy,” Stiegler said.
Riot Blockchain is another mining and Bitcoin services firm that has seen an expansive increase in its valuation over the last three months. Riot is one of the largest publicly-traded Bitcoin miners in the United States and focuses on proof-of-work mining.
“The recent addition of 8,000 S19 Pro miners to Riot’s total hash capacity, which now exceeds 1.45 EH/s, has contributed to investor confidence in the company over the last few months,” said Stiegler. “Much like Marathon, Riot focuses on scale and efficiency—increasing output while decreasing the unit cost of energy inputs.”
“Riot Blockchain has complemented these efforts with investments in the wider Bitcoin ecosystem, backing blockchain escrow service Tesspay and cryptocurrency accounting and audit house Verady“, Stiegler said.
The optimistic valuation of these two firms, though, speaks to wider market confidence in the long-term ability of Bitcoin to operate as a decentralized medium of exchange. While often derided for its fluctuations in value, Stiegler explained that mining firms and changing consumer sentiment will help stabilize the value of BTC in the coming years.
“Marathon and Riot have seen unprecedented expansions in their market cap not just because BTC is trading at nearly $60,000 per share, but because BTC is growing in acceptance and positioned to make an impact in the post-COVID economy,” Stiegler said.
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