Cryptocurrency mining stocks on Wednesday saw a sharp decline in stock prices. Bitcoin (BTC 4.74%) rose 5.9%, and its market cap once again exceeded $1 trillion.
hut 8 (hut 17.06%) It jumped 19.5%, clean spark (CLSK 9.25%) Increased by 18.8%. marathon digital (Mara 10.75%) 15.6% increase; riot platform (riot 10.46%) It rose 11.9% in morning trading. As of 10 a.m. ET today, the stocks of these mining companies were up 17.8%, 10%, 11.6%, and 10.6%, respectively.
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bitcoin pop
Bitcoin's upward momentum seems to be unstoppable. Expectations of higher interest rates have not had a negative impact on cryptocurrencies, and the industry is gaining momentum.
The latest evidence is iShares Bitcoin Trust The maximum number of Bitcoins under management is 100,000 Bitcoins, or approximately $5.2 billion in value.
There is also speculation that the expected halving event in mid-April could cause Bitcoin's value to rise again. In some cases, these events could be a case of “buying rumors and selling news,” but we are still in the rumor stage for the next halving.
Miners win across the board
There are two reasons why mining stocks have risen mainly due to today's movements. Rising Bitcoin prices will make the business more profitable as mining input costs (rigs, electricity, etc.) will not increase, but it will increase the revenue side of the income statement and create operating leverage.
And most of these companies have cryptocurrencies on their balance sheets, making great use of them. As the price of Bitcoin increases, its balance sheet also improves.
This kind of leverage means there are days like today where mining stocks can rise significantly more than Bitcoin. But that also means today's gains could be offset by tomorrow's declines.
What will the future hold for Bitcoin?
Bitcoin’s movement today and over the past few months is not based on any fundamental improvement in the utility of the token. Rather, it is driven by flows into Bitcoin from exchange-traded funds (ETFs) and speculators hoping to bring them to market.
Given the recent influx of money into the crypto market, this momentum is very likely to continue for some time. Where I think investors should be careful is when a momentum trade ends.
Although Bitcoin still maintains its status as the “digital gold” of the crypto market, much more innovation and development is happening on smaller, faster blockchains. And ultimately, that could be disruptive for Bitcoin.
As more ETFs are approved for digital currencies other than Bitcoin, a broader range of cryptocurrencies will be available, allowing more investors to participate and have options beyond the currencies with the largest market capitalizations. There is also a possibility that the momentum will turn into a rally.
Investors need to understand upside and downside risks. For now, the market has given significantly higher valuations to Bitcoin, miners, and their investors.
Travis Hoium has no position in any stocks mentioned. The Motley Fool has a position in and recommends Bitcoin. The Motley Fool has a disclosure policy.
