3 Crypto Mining Stocks With Massive Upside Potential

3 Crypto Mining Stocks With Massive Upside Potential

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.

Bitfarms Market value: $853.7 million

$853.7 million TipRanks consensus price target: $10.00 (139% upside potential)

$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

$1.0 billion TipRanks consensus price target: $19.52 (216% upside potential)

$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.

EU Markets Regulator Calls for Ban on Proof-of-Work Crypto Mining: Report

Proof-of-stake mining is less energy intensive in that users win the right to record transactions based on how much investment - or “stake” - they have in the network. Ether has plans to migrate to a proof-of-stake model later this year.

Crypto Miner Argo Diversifies Into Non-Mining Blockchain Business

One of the main reasons for Argo to launch this new business is to be ready for the future of blockchain technology, according to Chalus. There will be many innovations and trends that will take place over the next few years that will change the blockchain ecosystem, and by participating in such projects now, Argo will be ready for the future, he added.

Intel to Unveil ‘Ultra Low-Voltage Bitcoin Mining ASIC’ in February

This brings the company into direct competition with the likes of Bitmain and MicroBT in the market for bitcoin mining ASICs, or application-specific integrated circuits, for the first time.

How to mine Ethereum: A step-by-step guide

Mining ether is the process of using computing power to solve complex puzzles and validate “blocks.”

There are different methods of mining, with pool mining being the most straightforward method, especially if you don’t have much hardware.

Once you’ve set up your mining operation and configured a wallet, you can start collecting ether.

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Ethereum is a digital platform that runs on blockchain technology. It’s most commonly known for its smart contract functionality and native cryptocurrency, ether. The broader purpose of the Ethereum network is to enable decentralized apps (dApps), such as marketplaces for nonfungible tokens (NFTs).

Transactions within these programs are publicly distributed and don’t require a central authority for governance. As a result, the Ethereum network needs a global system of computers to compile and verify each batch of transactions (i.e., a block) within the platform’s blockchain.

That’s where mining comes into play. In essence, miners use the computing power of dedicated hardware to solve complex puzzles. This process not only allows the network to function but also protects it from hacking and other malicious attacks. In exchange for their services, miners receive a transaction fee — a predetermined amount of ether upon the successful validation of a block.

The Ethereum network is anticipated to move to a different incentive model, called proof of stake (PoS), at some point in 2022. However, if you want to explore Ethereum mining in the meantime, we’ve outlined the set-up process and best practices.

Step 1: Pick your mining approach

There are currently three different approaches to Ethereum mining:

Pool mining

Solo mining

Cloud mining

Pool mining is the most straightforward way to mine ether, especially if you don’t have much hardware. That’s because mining Ethereum has gotten increasingly difficult and time-consuming as more coins have entered circulation. Pool mining allows miners to combine their collective computing power to solve Ethereum blocks in less time. In turn, the rewards are split between the group based on power contribution, which is measured by hashpower.

Important: Hashpower is the computing power used by your hardware to solve crypto algorithms.

Solo mining is more complex and requires considerable hashpower. To solve puzzles in a realistic amount of time by yourself, you’d likely need a farm of elaborate mining rigs powered by dozens of graphics cards. If you choose this route, it’s important to consider the financial and spatial implications. Beyond equipment cost, which could be thousands if not tens of thousands of dollars, you should also evaluate factors like ventilation, noise, electricity costs, and physical space.

For these reasons, solo mining is generally only recommended for professional miners who are willing to make a significant capital investment. That said, this approach can be more profitable in the long run, as you would avoid fees and shared profits.

Cloud mining is usually the easiest mining approach in terms of barrier to entry. Under this approach, you don’t need to buy a fancy system or commit your personal computer to mining. Instead, you pay another miner an upfront fee to mine coins for you. They do the mining, while you receive the newly minted coins. However, renting another miner’s computer power introduces additional risks, such as scams and fraud. If you don’t entrust this service to a reputable miner, it’s possible that they may simply take your upfront payment and run.

Step 2: Open a crypto wallet

Cryptocurrency is digital, so you don’t have to worry about loose coins. But you still need something to stow your holdings. That’s where crypto wallets come into play. Crypto wallets store your coins, much like a bank account houses your paychecks. There are two general types of wallets: hardware wallets and software wallets.

Hardware wallets: Physical devices, which are also referred to as “cold wallets,” that store your crypto accounts' private keys offline. They often look like high-tech USBS.

Physical devices, which are also referred to as “cold wallets,” that store your crypto accounts' private keys offline. They often look like high-tech USBS. Software wallets: Digital programs that house your crypto, typically requiring an internet connection to access. These wallets provide both public and private keys.

There are pros and cons to both. Hardware wallets are generally regarded as safer because they aren’t linked to an online platform. That said, they’re usually more expensive and less convenient than a software wallet. On the other hand, software wallets are far more convenient, as you can access them through a web browser or mobile app. Conversely, that means they’re more susceptible to hacking than an offline wallet.

Regardless of type, wallets have two important keys with distinct purposes. The first is a public key, and it allows other parties to transact with your wallet. The second is a private key, which grants access to the wallet. As the name implies, you must safeguard your private key — otherwise, someone else could take control of your funds.

So, if you want to mine ether, you’ll need an Etherum wallet. Once you open a wallet, you’ll have a public key that you can use during the mining configuration process. For instance, if you join a mining pool, you’ll link your wallet and receive periodic coin distributions based on your hashpower contribution to the pool.

Step 3: Make sure you have the right hardware and software

Before you start mining ether, you’ll have to set up your infrastructure. Mining cryptocurrency requires a ton of computing power. So, you’ll need a strong computer — colloquially known as a “rig” — if you want to mine ether profitably. Your hardware setup largely depends on what mining approach you choose.

If you’re a more casual miner, consider joining a mining pool. In that case, you’d likely need a combination of the following:

A computer or dedicated mining rig with one or more graphics processing units (GPUs)

An Ethereum mining operating system. These can vary in terms of functionality and ease of use

GPU drivers, which enable communication between your graphics card and operating system

A wallet, which can be a physical device or digital program, to store your rewards

On the other hand, if you plan to be a hardcore miner and pursue the solo mining path, you’ll have to set aside a sizable sum for equipment, not to mention physical storage space. While you could still elect to load up on GPUs, you may want to consider a more expensive but also potentially more efficient alternative: Application-Specific Integrated Circuit (ASIC) mining.

ASIC mining rigs are designed specifically to mine crypto. For that reason, they tend to generate more computing power and solve blocks in less time. But there are trade-offs. ASICs can retail for tens of thousands of dollars, creating a high barrier to entry for the average miner. ASICs can also consume much more power than GPUs, which may drive up electricity bills. On top of that, ASICs are optimized for a specific coin — such as Ethereum or Bitcoin — whereas GPUs can mine any coin.

“With the arrival of the PoS model looming, I would recommend purchasing a GPU over an ASIC rig,” says Jeff Adams, data center operations and crypto mining strategic consultant at MineHog.

“Unfortunately, ASIC miners will see their rigs become obsolete when Ethereum 2.0 is implemented. Without being able to sell any of its components for more than a few bucks, using it as a space heater during the winter months might be the most value you can get out of it in the future,” Adams adds.

Quick tip: If you’re unsure about mining ether or you want to explore other altcoins, consider browsing whattomine.com, which outlines the most profitable coins based on your GPU.

GPU vs ASIC mining

There are pros and cons to both GPU and ASIC mining, which we’ve summarized in the following table.

GPU mining ASIC mining Better suited for casual miners, such as those who want to join a mining pool Better suited for serious miners with large budgets for Ethereum mining Generally less expensive than ASICs but have less computing power Generally more powerful than GPUs, allowing for more time-efficient mining — but also consumes much more power Not limited to a single crypto, enabling miners to pick and choose other coins to mine Can only mine the crypto it was specifically designed for Can be done via personal use computer, so long as the graphics card is compatible Typically requires a 220v outlet, at least, which is double the size of a standard home outlet Does not produce as much heat or noise, unless you maintain several rigs Produces a lot of heat, necessitating cooling systems and proper ventilation

Step 4: Choose a mining pool

Unless you’re willing to invest tens of thousands of dollars in equipment, a mining pool is the simplest way into crypto mining. But it’s still prudent for aspiring miners to review their pool options before moving forward.

Pools can vary in structure, such as pool size, hashrate, payout, and fees. For instance, as of this writing, Ethermine has more than 400,000 active miners while 2miners has more than 80,000. This influences the pool’s block-solving speed and, in turn, its payout. But there are far more than two pools to pick from — you can use PoolWatch to compare and oversee active Ethereum mining pools.

Here’s an overview of common mining pool factors:

Pool size: The number of active miners within the pool

The number of active miners within the pool Hashrate: As mentioned before, the hashrate is the combined computing power of the mining pool

As mentioned before, the hashrate is the combined computing power of the mining pool Minimum payout: The amount needed before you can collect your ether rewards

The amount needed before you can collect your ether rewards Payout method: The pool’s process for distributing rewards to its members

The pool’s process for distributing rewards to its members Fees: The pool administrator’s payment for running the pool, which is typically a fixed percentage collected from each solved block

The pool administrator’s payment for running the pool, which is typically a fixed percentage collected from each solved block

Quick tip: Your pool’s server location matters, too. To optimize your mining performance, use a server that’s in your region.

Step 5: Reap your rewards

Time for all of that hard work (at least, from your computer) to pay off. Once you’ve set up your mining operation and configured a wallet, you can start passively collecting ether. Assuming you’re a member of a mining pool, you’d receive payouts in periodic installments based on the block-solving success of your group. Most mining pools have online dashboards that users can access to assess mining performance, such as efficiency and yield.

“The most profitable pools historically have been Ethermine, F2Pool, Nanopool, and FlexPool,” says Chris Kline, the Chief Operating Officer of Bitcoin IRA.

He continues, “These pools provide consistent blocks, with relatively low fees, and frequent updates to the software to make the pool run smoother.”

Generally speaking, a major catalyst for mining a particular crypto is the belief that the coin will appreciate in value. So, at this point and going forward, you’re responsible for managing your crypto holdings. In other words, you’re not only a crypto miner but also an investor.

Best practices

Although Ethereum is a popular cryptocurrency, there are noteworthy pros and cons to mining ether. This particular platform has made strides in terms of application and development — NFT marketplaces are a prime example. In turn, Ethereum has garnered a lot of attention from both miners and investors alike. But if your goal is to simply bet on the future of Ethereum, you may be better off buying ether rather than mining it.

Also, it’s important to monitor changes to the Ethereum protocol. While Ethereum is a decentralized platform, its developers still update its mechanics from time to time, which can impact block validation procedures and mining profitability.

Before you invest any time or money into mining ether, consider the implications of any announced updates to the network.