What happened
The world's largest cryptocurrency, Bitcoin (BTC 5.20%), got a lot bigger this week, and that was good for the entire cryptocurrency space. That includes companies that mine tokens such as HIVE Blockchain Technologies (HIVE), companies that aspire to mine them like Cipher Mining (CIFR 0.53%), and companies that provide mining equipment to those that do, such as Canaan (CAN -4.46%). And, of course, there's also Coinbase Global (COIN 0.80%), which operates a major exchange that allows people to trade cryptocurrencies.
All of these stocks have gone up since the market closed last Friday. According to data provided by S&P Global Market Intelligence, as of the market close on Thursday, HIVE Blockchain was up 19%, Cipher Mining was also up 19%, Canaan was up 33%, and Coinbase was up 7%.
One-month returns for Bitcoin and cryptocurrency stocks compared to the S&P 500. Bitcoin Price data by YCharts
So what
This week, Bitcoin hit a new all-time high of almost $67,000. That was a nearly 60% increase in just a month. Gains like that naturally stoke interest in cryptocurrency mining -- the process of validating transactions and unlocking new tokens.
As the price of Bitcoin surged, sank, and surged again over the past year, cryptocurrency mining companies have been increasing their mining power to take advantage. Mining power is measured by something called "hash rate," and Canaan happily supplies the hardware that provides that to mining companies.
Canaan didn't have any news to report during the past week. But when it delivered its most recent quarterly results in September, its business was booming. Canaan reported it sold a record 5.9 million terahashes of equipment during the second quarter.
Better yet for Canaan, its revenue growth is outpacing unit-sales growth because the company is getting higher prices per unit than it was last year. For perspective, the amount of hashing power sold was up 127% year over year in Q2, whereas Canaan's Q2 revenue of $167.5 million was up by a whopping 507%.
Image source: Getty Images.
The total hash rate of the Bitcoin blockchain network has been increasing dramatically as more mining companies get into the game and as existing companies increase their hashing power. According to Blockchain.com, the total hash rate is currently at 148 million terahashes per second (TH/s). This is down from its all-time high, but the drop can be attributed to China's ban on mining. Those players that remain continue to up their hashing power.
HIVE Blockchain is among the companies buying mining equipment. On Thursday, it announced it's buying 6,500 Bitcoin miners. Right now, its hashing power is at 1.2 exahashes per second (EH/s), giving it the capacity to mine a couple hundred bitcoins per month. Its newly announced purchase will add 585 petahashes per second (PH/s) to its capacity. But accounting for all of HIVE's recent purchases, it expects to have a hash rate of 3 EH/s by March -- almost triple what it has today.
Cipher Mining is also buying equipment. Last week, the company announced it was buying up to 56,000 mining rigs from Bitfury for up to $350 million. These rigs would have a total hash rate of around 10.9 EH/s -- over three times more than what HIVE Blockchain expects to have by March. However, these mining rigs will be delivered in waves, and the first wave isn't expected to arrive until June.
Image source: Getty Images.
Now what
Canaan, HIVE Blockchain Technologies, and Cipher Mining all try to profit from different parts of the cryptocurrency value chain. And with Bitcoin and other cryptocurrencies hitting all-time highs this week, it's easy to see why the market was so excited about these stocks. But Coinbase might be a way for investors to benefit from multiple parts of the cryptocurrency space at the same time.
Consider that with a current market capitalization of $78 billion, Coinbase trades at under 30 times trailing earnings, which is good value in its arena these days. Investors are doubtful that trading volume can keep going up -- and facilitating trades is how Coinbase makes most of its money. However, with cryptocurrencies surging to new highs, perhaps its most important revenue stream is doing better than expected.
Moreover, Coinbase is actively diversifying away from its reliance on cryptocurrency trading fees. Just last week, it announced it's launching a marketplace for trading non-fungible tokens (NFTs), and more than 1 million people have already gotten on the waiting list. Then this week, it announced it's growing its cryptocurrency custodial business via a partnership with Facebook.
With over $4.3 billion in cash on the balance sheet, ongoing profits, and recent financing for $2 billion more, Coinbase is loaded. And the company clearly has ideas on how to spend it and exercise optionality. Because of these things, Coinbase stock could surprise investors in years to come.
