Valuing Public Bitcoin Miners on Their Hash Rate

Billions of dollars are currently flooding into public Bitcoin mining companies. They are able to raise a significant amount of capital for two key reasons. First, these are high-growth technology companies that actually spin-off a positive cash flow. This is a stark contrast to the unprofitable high growth names that peaked in 2021 like Uber, Zillow, and Robinhood. Second, many traditional firms may not be able to buy Bitcoin directly, so they invest in related equities to get proper exposure. This shouldn’t come as a surprise that Vanguard and Blackrock are the top two institutional holders of RIOT and MARA, the two largest publicly traded Bitcoin mining companies in the US.

While it is logical for large institutions with public equity mandates to demand exposure to companies like RIOT and MARA, should you follow them? Or if you have more freedom to allocate your capital as a high net worth individual, family office, or hedge fund, should you look elsewhere to get exposure to Bitcoin mining?

This Blockware Intelligence Report is going to break down just how much you’re paying per ASIC if you decide to invest in these large publicly traded Bitcoin mining companies. It also reviews the pros and cons of investing in public Bitcoin miners in comparison to buying and hosting your own rigs.

As of February 9th, the data above was compiled from RIOT and MARA corporate websites and a few other sources noted below. Their cash was extracted from their most recent balance sheet. The current value of their Bitcoin treasury was obtained from BitcoinTreasuries.net. For infrastructure, RIOT’s Whinstone US facility was obtained from the acquisition amount on Bloomberg, and MARA has an asset-lite investment strategy where they invest only in miners rather than infrastructure as noted in their most recent Investor Presentation on slide 11. It’s also important to note that RIOT and MARA don’t only own S19 pros, but it is a relevant new generation machine that can be used for this non-perfect comparison.

As noted in the table, the two largest publicly traded Bitcoin mining companies are RIOT and MARA. They both have market capitalizations above $2 billion, and they trade at steep valuations compared to the market value of the ASICs they currently have deployed.

At current market valuations, removing their cash, BTC treasury, and infrastructure capex (if applicable), and assuming their fleet of ASICs contains mostly new generation S19 pros, you’re buying currently deployed RIOT S19 pros at $46,000 and MARA’s S19 pros at $84,000. That is more than 5x what you would pay from a broker like Blockware Solutions.

Zooming out and using their hash rate projections to value their future fleet at today’s market capitalization, you’re buying RIOT S19 pros at $11,300 and MARA’s S19 pros at $11,500. While this is significantly more attractive, it’s important to consider a large majority of their future ASIC fleet is yet to be delivered and deployed. On top of that, deployments of this scale are unprecedented and may not be executed perfectly and on schedule.

Why Invest in Public Miners?

While this analysis is simple and striking, the valuations of these companies are based on more than their current and future hash rate.

MARA is likely the closest company to owning and running just ASICs, as they host their miners with other companies in facilities they do not own. With RIOT, you are investing in both ASICs and mining infrastructure as well, which includes their massive Whinstone facility in Texas. 

In addition, these companies are able to negotiate highly competitive deals with hosting providers and energy companies to drive down their electricity costs. With that being said, there are more costs than just electricity when operating these large companies. You have large G&A costs, infrastructure security, infrastructure upkeep, management team compensation, interest expenses, etc. 

Last, these companies have access to US public capital markets. They can get access to capital quickly and cheaply to really scale their operations. However, at the end of the day, these corporations control their Bitcoin, not you. They control the strategy, and that strategy can change at any time. By investing in public corporations, you must trust an external management and operation team to perform without making mistakes.

2021 Public Equity Performance Compared to Operating an S19 Pro

Public miners have clearly become a common avenue for equity investors to play Bitcoin, sometimes with even greater degrees of volatility. Over the course of 2021, spot Bitcoin returned a gain of roughly 49%. RIOT returned less, posting a gain of about 31%. MARA on the other hand, vastly outperformed Bitcoin and RIOT with its price increasing 215% in 2021. 

Running an S19 Pro over the course of 2021 would’ve given you a return of 124%. Therefore, Marathon’s stock price did actually outperform running an S19 Pro. But MARA’s return did not come easily. Over the course of 2021, MARA saw 10 separate corrections of more than 20%. Over half of these retracements were greater than 40%. This type of volatility is not easy for many investors to stomach. So while Marathon’s stock price did outperform operating an S19 last year, its large degree of volatility should be noted.

Furthermore, when investing in a public miner, your return is solely dependent on that stock’s price. As we know, these stocks’ returns are mostly tied to that of Bitcoin, and essentially just double down on any existing Bitcoin exposure. When operating or owning an ASIC, you spin off positive cash flows regardless of Bitcoin’s spot returns, assuming your energy costs are lower than the reward. This removes much of the volatility associated with owning cryptoassets because even if Bitcoin depreciates in USD terms, you will still be mining blocks and earning rewards.

Why Buy and Host Your Own Rigs?

Mining in practice is not easy, and it’s one reason why so many prefer to simply invest in large public miners like MARA and RIOT. It is difficult to procure ASICs, build large mining facilities, and source cheap scalable electricity all on your own. 

As an institution, hedge fund, or high net worth individual, it makes sense to purchase and host ASICs with a trusted partner like Blockware Solutions. You can buy ASICs at reasonable prices, not have to manage physical mining infrastructure, and have full control over what you do with the Bitcoin you mine. Additionally, you own the mining rigs, so not only do they generate positive free cash flow, but they will also have a significant salvage value (resale value of rigs).

With Bitcoin mining experience dating back to 2013, Blockware Solutions has sold over 250,000 ASICs, hosted 200+ MW of clients, and mined over 1,500 BTC from the Blockware Mining Pool.

By investing in public corporations, you must trust an external management and operation team to perform without making mistakes. With Blockware Solutions, you have access to a sales and customer support team ready to assist you and help scale your mining operation. 

If you are looking for a trusted partner to assist you in deploying capital to the Bitcoin mining space, Request a Quote from Blockware Solutions.