As the rapid growth of the cryptocurrency market continues to attract more players, volatility remains high based on the events of this year. The bitcoin price in April spiked to a new all-time high of about $64,789 before plunging to a low of about $29,608 last month. It is now back closer to the $49,000 mark.
On the other hand, Ether, which crypto investors believe could outgrow bitcoin because of the applications of its blockchain network, rallied to trade above $4,000 in May before plummeting to $1,776 last month. As a result, even predicting the price of Ethereum is now as tricky as investing in bitcoin.
Therefore, some investors are finding it better to invest in companies that invest in crypto, rather than trying to buy and sell cryptocurrencies.
The case for investing in crypto mining companies
A lot of companies have invested in the cryptocurrency industry over the last few years. Some are actively buying cryptocurrencies like bitcoin and ethereum, while others prefer to mine crypto.
Crypto miners are compensated for every cryptocurrency transaction they validate. To be profitable, the prevailing cryptocurrency price must exceed the cost of mining it. Therefore, the performance of crypto mining companies mirrors, to some extent, the direction of cryptocurrency prices. Some notable examples include Riot Blockchain Inc. (RIOT, Financial) and Marathon Digital Holdings Inc. (MARA, Financial), whose stock prices surged when cryptocurrency prices spiked in April and plummeted again last month.
However, unlike buying and holding bitcoin or ethereum, these companies announce financial results quarterly, revealing their incomes, growth prospects and cost structures.
Therefore, you can work out the intrinsic value of the company to guide you in making your investment decision. As of the writing of this article, Riot Blockchain shares trade at a forward price-earnings ratio of about 23.66 while Mara Digital’s equivalent is 13.00. As a result, Marathon Digital seems like the more attractive value option for investors.
In summary, investors that prefer stocks to crypto but would like to commit a portion of their portfolio to crypto-related investments can do so by using crypto miners.
The case for buying and selling cryptocurrencies
Although crypto enthusiasts are optimistic that cryptocurrencies have a bright future, history says otherwise, at least so far. The bitcoin price is unpredictable as ever, even after giant multinational companies like Walmart Inc. (WMT, Financial) and PayPal Inc. (PYPL, Financial) decided to embrace crypto.
Therefore, the idea of buying and holding cryptocurrencies indefinitely may not be smart. However, given the volatility of bitcoin and ethereum, the industry presents multiple opportunities for short-term traders to profit.
Cryptocurrency trading is now becoming more popular due to its availability on foreign exchange (forex) brokerage platforms that allow traders to trade on margin. However, just as the opportunity to profit is massive, so are the risks.
In summary, crypto mining companies present an alternative to investing in the highly lucrative but highly dangerous crypto market. Therefore, as cryptocurrency prices remain highly volatile, investors looking to allocate portions of their portfolios to the long-term potential of crypto could be better off buying shares of companies that mine crypto, while traders looking to make a quick buck are still better off buying cryptocurrencies directly.