Bitcoin
Bitcoin and Crypto Stocks Pop Again This Week
Bitcoin has lifted some cryptocurrency stocks.
Some portions of crypto market came to life this week, led by Bitcoin (Bitcoin 2.28%). The token with the world’s largest market capitalization has been boosted by a resurgence in risk-taking this week following a few weeks of uncertainty surrounding geopolitics and the Federal Reserve’s next move. All of this has caused Bitcoin to jump 10.1% in the last seven days, as of 2:40 pm ET on Friday.
Bitcoin’s move has led to some big moves among leveraged Bitcoin players. According to data provided by S&P Global Market IntelligenceBitcoin holder Microstrategy (MSTR 10.04%) rose as high as 33.6% this week, before falling slightly and trading 28.8% higher at the time of writing. Miners Digital Marathon (MARA -1.02%) jumped 21.7% at its peak, Riot Platforms (REBELLION 0.60%) rose 21.7%, and Cabin 8 (CABIN 2.69%) rose 19.5%. They are currently up 28.8%, 9.3% and 13.9% for the week.
Bitcoin’s big move
The value of Bitcoin has fallen in recent weeks following the halving that halved the reward for mining a new Bitcoin. It didn’t help that investors were worried that the Federal Reserve would keep interest rates higher or that the conflict in the Middle East and Eastern Europe would continue to escalate. As Bitcoin trading correlated more with growth stocks than as a hedge to Fed moves, these uncertainties caused Bitcoin to fall.
Earlier this week, the return of some risk-taking driven by pandemic-era personalities caused a number of stocks to jump dramatically and, not surprisingly, these moves reached the crypto market. What is not clear is whether these commercial dynamics, which ultimately did not generate fundamental value for any company, will keep the market sustained.
Leveraging Bitcoin
Meanwhile, companies leveraged by Bitcoin are the biggest beneficiaries. MicroStrategy has been one of the most bullish voices in the Bitcoin market and has been buying the token with debt in recent years. This means that the stock will plummet if the value of Bitcoin falls, and when it rises, the stock may also soar.
Miners will have a double benefit if Bitcoin rises. This not only means that what they mine is more valuable, but they also keep Bitcoin on their balance sheets, enjoying the impact of the token’s rise.
This is the balance between investing in MicroStrategy or Bitcoin mining stocks.
Will pop last?
Some of the same dynamics that led to the crypto market peaking in 2021 appear today. Stocks are extremely valued and the market is ignoring weakening fundamentals and an economy that is beginning to show signs of stress. It doesn’t seem like this would affect Bitcoin, but I mentioned earlier that Bitcoin trades more like a growth stock than a hedge for financial markets.
We also saw tens of billions of dollars flowing into the crypto industry after crypto exchange-traded funds (ETFs) were approved and more people started trading again. These trends may not last if the economy slows. As a result, I will stay out of Bitcoin and leveraged stocks for Bitcoin because the risk at this point is not worth the potential reward.
Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Bitcoin. The motley fool has a disclosure policy.