News
Bitcoin and crypto stocks are back in vogue this week
Some portions of cryptocurrency market came to life this week, led by Bitcoin (CRYPTO: BTC). The token with the world’s largest market capitalization has been led by a resurgence in risk-taking this week, after a few weeks of uncertainty over geopolitics and the Federal Reserve’s next move. All of this has led Bitcoin to rise 10.1% over the past 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 InsightsBitcoin holder MicroStrategy (NASDAQ:MSTR) rose as much as 33.6% this week before falling slightly and trading up 28.8% as of this writing. Miners’ digital marathon (NASDAQ: MARA) jumped 21.7% at its peak, Riot control platforms (NASDAQ: RIOT) rose 21.7%, and Hut 8 (NASDAQ: HUT) 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 collapsed in recent weeks after the halving which halved the reward for mining a new Bitcoin. It didn’t help that investors feared the Federal Reserve would keep interest rates higher or that conflict in the Middle East and Eastern Europe would continue to rage. Since Bitcoin trades correlated more with rising stocks than as a hedge to Fed moves, these uncertainties caused Bitcoin to fall.
Earlier this week, the return of risk-taking by pandemic-era personalities caused a dramatic jump in numerous stocks, and not surprisingly, such moves have made their way to the cryptocurrency market. What’s unclear is whether that trading dynamic, which ultimately brought no fundamental value to any company, will keep the market buoyant.
Leverage Bitcoin
Meanwhile, companies leveraging Bitcoin are the biggest beneficiaries. MicroStrategy has been one of the most bullish voices in the Bitcoin market and has been purchasing the token with debt in recent years. This means that stocks will crash if the value of Bitcoin drops, and when it rises the stocks can even skyrocket.
Miners have a double advantage if Bitcoin rises. This not only means that what they mine is more valuable, but they also keep Bitcoin on their balance sheets, capitalizing on the impact of the token’s growth.
This is the balancing act of investing in MicroStrategy or Bitcoin mining stocks.
Will pop last?
Some of the same dynamics that led to the cryptocurrency market peaking in 2021 appear present today. Stocks are at extremely high valuations, and the market is overlooking weakening fundamentals and an economy that is starting to show signs of strain. This doesn’t appear to affect Bitcoin, but I mentioned before that Bitcoin trades more like a growth stock than a hedge for the financial markets.
The story continues
We’ve also seen tens of billions of dollars flow into the cryptocurrency sector after 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 stocks that leverage Bitcoin because the risk at this time is not worth the potential reward.
Should You Invest $1,000 in Bitcoin Right Now?
Before you buy Bitcoin stocks, consider this:
The analyst team at Motley Fool Stock Advisor has just identified what they believe is the 10 best stocks for investors to buy now… and Bitcoin was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia you created this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $578,143!*
Stock Advisor provides investors with an easy-to-follow model of success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks every month. The stock advisory service has more than quadrupled the return of the S&P 500 Index since 2002*.
*Equity advisor will return starting May 13, 2024
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.
Bitcoin and crypto stocks are back in vogue this week was originally published by The Motley Fool