Bitcoin stocks: What investors should know

• Bitcoin stocks generally refer to traditional financial assets tied to the Bitcoin cryptocurrency, including shares of companies holding significant Bitcoin reserves or operating within the cryptocurrency ecosystem, such as trading platforms and mining firms.

• The term can also, albeit incorrectly, refer to Bitcoin exchange-traded funds (ETFs): a publicly traded fund that tracks the price of BTC.

• Bitcoin stocks allow investors to gain exposure to the leading cryptocurrency via regulated financial instruments.

Bitcoin stocks is often used to describe traditional financial assets that are either directly or indirectly linked to the Bitcoin (BTC) cryptocurrency.

These assets typically include the shares of publicly-traded companies that hold a substantial amount of BTC on their balance sheets, as well as businesses that operate within the cryptocurrency ecosystem, such as trading platforms, mining firms, and companies providing blockchain technology solutions.

When the price of Bitcoin rises, Bitcoin stock holders may expect the price of their investments to increase in tandem, driven by market sentiment and the potential for increased profitability linked to higher Bitcoin valuations. However, this correlation is not guaranteed.

Various factors, including company-specific news, broader market conditions, and regulatory developments, can impact these stock prices independently of Bitcoin's price movements.

Investors may choose to buy these "Bitcoin stocks" to gain exposure to the cryptocurrency market without directly purchasing and managing Bitcoin itself. This approach can simplify the investment process, as it avoids the complexities and risks associated with custodying and securing digital assets.

Furthermore, investing in Bitcoin-related stocks may potentially provide additional benefits. These can include dividend payments and potential appreciation from a company's core business activities beyond their Bitcoin holdings.

To generate new bitcoin and earn a cut of each block’s transaction fees, users must engage in the practice of mining.

This Proof-of-Work (PoW) consensus mechanism is what secures the Bitcoin network, requiring participants to compete against one another using specialized equipment to win the right to commit a new block of transactions to the Bitcoin blockchain.

For more information, check out our Kraken Center Learn Center guide, What is Bitcoin mining?

Due to the difficulty involved, this isn’t feasible without purpose-built (ASIC) hardware, capable of performing hundreds of trillions of hashing operations per second. Such devices are expensive — both in upfront cost and in electricity consumption — so hobbyist mining rigs have largely given way to major players with industrial mining operations.

These major players typically own warehouses and farms dedicated to running Bitcoin miners 24/7. To improve their profitability, many mining companies decide to operate in regions where energy costs are low, or reduced via renewable sources. Some choose to establish themselves as public businesses that issue shares to help finance their growth.

These Bitcoin stocks work just like any traditional business’ stocks: they represent an ownership stake in their respective company and may confer voting rights and dividends.

Why buy Bitcoin mining stocks?

It’s important to bear in mind that stocks in a Bitcoin mining company are a different financial asset entirely to Bitcoin.

There’s undoubtedly some overlap in the factors that motivate trading decisions — a sharp decline in BTC price may have a knock-on effect on Bitcoin stocks, whereas increased interest in Bitcoin may cause mining companies to become more attractive.

However, there’s a lot more at play: a company has ‘tangible’ indicators that can influence its share price: earning reports, management changes, and overhead costs, to name just a few. For an investor well-versed in traditional stocks, this provides a degree of confidence.

There’s also the trading venue to consider: a risk-averse investor may not wish to be responsible for securely storing their crypto, or entrusting it to a centralized exchange. In this case, purchasing stock in a mining company may allow them some exposure to the crypto space, without the learning curve that comes with understanding a new asset.

Popular publicly listed Bitcoin mining companies include:

• Marathon Digital (MARA)

• Riot Blockchain (RIOT)

• CleanSpark (CLSK)

• Terawulf (WULF)

• Iris Energy (IREN)

• Hut 8 Mining (HUT)

Mining businesses may be the most popular choices in the Bitcoin stocks landscape, but they’re not the only ones.

A public cryptocurrency company is an entity that provides services or infrastructure within the crypto space — while also being publicly listed. At the time of this writing, there are relatively few of these players, though this is likely to change as crypto companies become more established.

Perhaps the most high-profile example is cryptocurrency exchange Coinbase (ticker: COIN), which went public in 2021. This is considered a “Bitcoin stock” by many as Coinbase’s primary activities revolve around building Bitcoin and crypto-focused products and services. As such, an investor may expect to see some correlation between Bitcoin price and the performance of a stock like COIN.

Another notable entrant in this category is Galaxy Digital (ticker: GLXY.TO) — a financial technology company that aims to facilitate access into the digital economy with blockchain technology and digital assets. Galaxy Digital ranks in second place for most Bitcoin held by a public company, at 17,500+ BTC.

Although not a “pure” crypto company (in that it also has non-Bitcoin lines), Block Inc. (ticker: SQ) has also been labeled a Bitcoin stock due to the Cash App product, which enables users to buy, store, sell and send BTC.

At press time, Block Inc currently holds over 8,000 BTC.

At this stage, it’s worth mentioning a third category of companies: businesses that aren’t focused on crypto, but hold a large amount of BTC. Some investors may take interest in these due to the company’s pro-crypto stance, and the possibility of future integration of crypto into their product lines.

At the top of the list is MicroStrategy (ticker: MSTR) — a tech company delivering business intelligence, mobile software and cloud-based services. MicroStrategy owns over 1% of the total Bitcoin supply (214,000+ BTC), and its executive chairman (Michael Saylor) is a high-profile advocate of Bitcoin as “digital gold”.

EV manufacturer and energy solutions provider Tesla (ticker: TSLA) also boasts significant holdings of 9,720 BTC, despite discontinuing cryptocurrency payments in 2021. CEO Elon Musk is known for his support for Dogecoin (DOGE).

To compare Bitcoin and Bitcoin-related stocks is to compare apples to oranges: both are such fundamentally different financial assets that not many parallels can be drawn between the two.

By holding Bitcoin, investors take custody of a digital asset detached from financial institutions and banks. In contrast, a Bitcoin stock (as outlined above) exists within a heavily regulated environment within the traditional financial ecosystem.

Both have their own pros and cons — indeed, one might compare the situation to buying gold mining stocks vs physical gold. The former requires no investment into physical security and has the potential to pay out dividends or provide outsized returns, while the latter removes counterparty risk and is a lot more liquid.

Ultimately, what may be a con to one investor could be a pro to another. Whether they should purchase stocks or Bitcoin (or both) will come down to their personal preference.

It’s important for new market participants to note that the Bitcoin cryptocurrency itself is not a company stock.

There is no public company behind the project. A globally distributed community of volunteers use their computers to support and secure the network.

This network collectively manages the issuance of new BTC units into circulation, as well as the processing of all BTC payments. This is why Bitcoin is often described as a truly “decentralized” payment system, free from the intervention of any single intermediary like a central bank or government.

In summary, as Bitcoin has evolved, so, too, has the environment around it — which inevitably means the creation of financial products for retail and institutional investors in the traditional financial world.

As we’ve discussed, a number of stocks have emerged as a proxy to cryptocurrencies, ranging from shares in crypto mining companies and centralized exchanges to unconnected, “Bitcoin-friendly” businesses.

Before investing in any of these, as with any investment, individuals should perform rigorous due diligence.

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