Leading cryptocurrency mining specialists saw skyrocketing stock returns in February 2024. According to data from S&P Global Market Intelligence, Riot Platforms (RIOT 3.17%) posted a 29.5% gain while Marathon Digital Holdings (MARA 7.71%) rose by 46.1%. CleanSpark (CLSK 13.58%) led the charge with a 107.7% jump.

All three rode the coattails of Bitcoin (BTC 1.75%), the largest and oldest cryptocurrency on the market and the actual digital asset Marathon, CleanSpark, and Riot are generating in their daily operations. Bitcoin’s price increased by 45.9% last month. On top of that, the three Bitcoin miners all reported fourth-quarter results in February, and each report either boosted or busted the crypto mining sector’s returns to some degree.

The dual forces driving Bitcoin’s recent surge

First, Bitcoin is sandwiched between two robust price-boosting catalysts.

The 11 Bitcoin-based exchange-traded funds (ETFs) that were approved in January were a drag on Bitcoin prices at first, but their active buying of digital currency coins has turned into a tailwind recently. The Grayscale Bitcoin Trust (GBTC 2.40%) has dropped from $28.6 billion to $27.5 billion of assets under management, as investors seek ETFs with leaner fee structures. On the other hand, iShares Bitcoin Trust (IBIT 2.38%), Fidelity Wise Origin Bitcoin Trust (FBTC 2.50%), Ark 21Shares Bitcoin ETF (ARKB 2.38%), and Bitwise Bitcoin ETF (BITB 2.41%) all started from zero on Jan. 12. Today, the Bitcoin assets of the four largest ETFs not named Grayscale add up to a cool $23 billion. That’s a hefty amount of newfound demand, reshuffling the location of roughly 344,000 Bitcoin coins on short notice.

On the flipside, the next halving of Bitcoin mining rewards is scheduled for late April. These pre-planned events take place once every four years, give or take a couple of months, shaking up the economics of Bitcoin mining and enforcing the lifetime limit of 21 million coins, max. Every halving so far has inspired huge price gains over the following 12 to 18 months, and the next crypto winter starts after those post-halving peaks. Past patterns are no guarantee of future market behavior, but this particular template is more reliable than most. I’m talking about hard-coded changes to how the Bitcoin blockchain network runs, with direct and predictable effects on the digital currency’s market price. And the next one is coming up in about six weeks.

So Bitcoin is on a roll, providing plenty of fuel for related stocks such as the crypto miners listed earlier.

What about those earnings reports, though? Here’s a brief overview of how the three miners performed, and how Wall Street reacted the next day:

BITCOIN-MINING STOCK EARNINGS SURPRISE REVENUE SURPRISE NEXT-DAY STOCK MOVE
Marathon N/A (Negative earnings, positive estimates) 9% (17%)
Riot 270% (7%) (6%)
CleanSpark 79% 5% 7%

ANALYST DATA FROM BENZINGA. MARKET DATA FROM YAHOO! FINANCE.

As you can see, each earnings report pushed the related stock significantly higher or lower, depending on the quality of the results. In particular, Marathon’s negative earnings threw ice water on the whole mining industry — the three miners under my microscope all fell 7% or more the next day.

Throwing more hardware at the crypto mining business

The crypto miner volatility isn’t going away anytime soon. Riot, CleanSpark, and Marathon are investing every penny they can spare in more mining facilities and expanded machine parks.

Riot’s hash rate (a measure of the computing power it focuses on Bitcoin mining operations) is expected to increase from 31.5 exahashes per second (EH/s) at the end of 2023 to 40.8 EH/s one year later. Marathon’s computing power should rise from 24.7 to 36 EH/s over the same period. CleanSpark is a bit smaller with just 10.1 EH/s in December, aiming for 20 EH/s by the end of June and 32 EH/s by year end.

Riot maintains a squeaky-clean balance sheet with zero long-term debt and $597 million in cash equivalents. Marathon recently paid down its debt balance from $750 million to $325 million while tripling its cash reserves. CleanSpark sits between those extremes with a small cash account and near-zero debt.

In light of these balance sheet differences, Riot strikes me as the safest of these inherently risky stocks, and its stock has indeed been less volatile in recent months. Marathon and CleanSpark come with greater financial risk, amplifying the highest highs and lowest lows along the way.

All things considered, I’d rather own Bitcoin or one of the spot-price ETFs than any of the crypto miners. I just get more sleep that way. Your mileage may vary, and all three stocks stand far below their three-year highs after February’s jumps.

Just promise you’ll be careful out there, dear reader, making small investments in these volatile tickers as part of a properly diversified portfolio. I would not recommend betting the literal farm on any of the Bitcoin miners, nor on Bitcoin itself.