Throughout 2023, Bitcoin (BTC 4.13%) mining stocks have been soaring. For example, Riot Platforms (RIOT 9.02%) is up 180% for the year, while Marathon Digital Holdings (MARA 12.76%) is up an almost equally impressive 134%. The price of Bitcoin is up 60% during this period, so this strong market performance makes sense.

But there's more to analyzing Bitcoin mining stocks beyond just the price of Bitcoin. One magic number could be very helpful for investors in determining which mining stocks are worth buying.

Bitcoin production capacity

It might sound obvious, but Bitcoin miners make money by mining as much Bitcoin as they can. As long as the price of Bitcoin is increasing, this should be profitable. That's why 2023 has been such a banner year for Bitcoin mining stocks. 

The focus in 2023 has been on overall Bitcoin production capacity. There are several ways to analyze production capacity. The easiest way is simply to look at how much Bitcoin has been mined each month. The largest publicly traded Bitcoin miners provide monthly production updates, and it's easy to see at a glance how much they've produced over any 30-day period.

You could also take a more nuanced view, and look at factors like the number of mining rigs in operation, as well as the number of mining rigs that are set to come on stream soon. Or you could look at a factor like hash rate, which measures the amount of computational power being used to mine Bitcoin. 

The overall takeaway is clear: Bigger is better in 2023. Investing in Bitcoin mining stocks is relatively easy this year -- just find the company mining the most Bitcoin, and you're good to go. 

Bitcoin operational efficiency

However, this narrative around Bitcoin mining stocks could change in 2024 due to the upcoming Bitcoin halving in April. This event, which takes place only once every four years, is one of the most anticipated events in the crypto industry. With any halving event, the reward paid out to Bitcoin miners for mining a single block of Bitcoin drops by 50%.

This might sound like a highly technical event of interest only to blockchain enthusiasts, but it has massive repercussions for Bitcoin miners. Essentially, it means that, all things being equal, Bitcoin miners will earn half as much money doing the same amount of work. To put this into perspective: Imagine if your boss told you that your salary has been slashed by 50%, but that you're still expected to show up and do the same amount of work.

That's why we're starting to see warning signals from analysts. One term I've seen used is "severe income stress," and I think that perfectly explains what's about to happen in 2024. According to analysts, production costs are going to double in 2024 due to the halving. Currently, the breakeven production cost for a single Bitcoin is approximately $15,000. As long as the price of Bitcoin stays above $15,000, Bitcoin miners should be profitable. However, in 2024, the average production cost for mining a single Bitcoin could increase to $30,000.

If you check out the current price of Bitcoin -- roughly $27,000 as of mid-October -- you can see why an average production cost of $30,000 is so worrisome. The average Bitcoin miner is not going to be making money next year unless the price of Bitcoin increases.

The magic number for Bitcoin miners

Thus, my magic number for evaluating Bitcoin miners is the average cost to produce a single Bitcoin. As an investor, I want this number to be as low as possible. I want to invest in a Bitcoin mining operation that is streamlined, efficient, and fully prepared to deal with "severe income stress" next year.

The one Bitcoin company I'm focused on right now is Riot Platforms, which is generally acknowledged to have the lowest Bitcoin production costs in the industry. In the second quarter of 2023, the average cost to produce a single Bitcoin was only $8,389. And that was actually a decline from the year-earlier period, when the average cost was $11,316. This tells me two things: Riot Platforms has a very efficient operation, and its operations are getting more efficient over time.

Going forward, the average Bitcoin production cost is what I'm using to evaluate Bitcoin miners. Yes, the absolute amount of Bitcoin they are producing is still important, but I want to make sure that these companies are making money on every coin they mine. Long story short, only the most cost-effective Bitcoin miners with the lowest production costs are going to survive in 2024. That's why I'm bullish on Bitcoin mining stocks that are best-in-class when it comes to operational efficiency.