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In the midst of the cryptocurrency craze, the investment strategy of backing pick-and-shovel makers is paying off big time. Bitcoin mining companies like Marathon Digital Holdings and Riot Platforms have far outperformed the popular digital currency, with gains of over 800% and 400% respectively this year. Even the US crypto exchange Coinbase Global and Bitcoin proxy MicroStrategy have seen impressive jumps of over 350% during the same period. Bitcoin itself has risen by about 160% in 2023. Bitcoin mining, which involves using specialized computers to validate transactions on the blockchain and earn rewards, is an energy-intensive process

The recent surge in mining stocks is a result of companies expanding their operations to increase Bitcoin production. This move is driven by expectations that demand for the cryptocurrency will skyrocket if US regulators approve a spot Bitcoin ETF. Bloomberg Intelligence analysts predict that the Securities and Exchange Commission will give the green light to such an ETF in the next two weeks. One mining company making waves is Riot Platforms, which recently made significant purchases of mining machines. Marathon, the largest miner in terms of computing power, has also acquired new facilities to boost its mining efficiency, a departure from its previous strategy as an asset-light company. Investors are closely watching Marathon Digital's move, as it could lead to improved mining efficiency

This explains the stock's impressive 11-day winning streak, with more than double the value over that period. It's worth noting that the stock price was over $80 when Bitcoin hit its all-time high in November 2021. According to Ihor Dusaniwsky, managing director of predictive analytics at S3, the mining stocks could face more buying pressure and a short squeeze if the rally continues. This could potentially drive prices even higher. Dusaniwsky believes that the recent price increase is fueled by long buying pressure and not short covering, and if the trend continues, we may witness more short covering and a definite short squeeze. Overall, the CoinShares Blockchain Global Equity Index has surged by 29% in December, putting it on track for its best month on record

This comes after a tumultuous year for cryptocurrencies, marked by industry scandals and bankruptcies like the collapse of the FTX exchange. Consequently, crypto stocks became a popular target for betting against. ©2023 Bloomberg L.P.