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Why Crypto Stocks Skyrocketed This Week
THE the cryptocurrency industry has come to life this week driven by gains from Bitcoin (CRYPTO: BTC). Economic news this week has been a bit mixed with a strong jobs report coming out on Friday after OPEC maintained oil production cuts earlier in the week. Bond yields rose as investors rejected expectations of a rate cut.
According to data provided by S&P Global Market Insightsshares of Global Coinbase (NASDAQ:COIN) rose 16.5% for the week, MicroStrategy (NASDAQ:MSTR) rose as much as 12.7%, and Figure Extraction (NASDAQ:CIFR) rose 23.2%. As of 3 PM ET, shares were up 9.8%, 5.9% and 9.7%, respectively.
Bitcoin’s reaction
At different times, Bitcoin has been seen as a hedge against the traditional economic system and an asset fueled by low interest rates like growth stocks. This week, it benefited most from OPEC’s announcement, which was interpreted by the market as a signal that the economy is not as strong as expected.
One of the strange market dynamics was that Bitcoin was the only one to make a big move higher this week. But that’s because the cryptocurrency has had more than two consecutive weeks of daily inflows into Bitcoin exchange-traded funds (ETFs). This will have a direct impact on Coinbase’s custody business, but ETF flows are also correlated with the rise in Bitcoin’s price.
How Bitcoin Strengthens Crypto Stocks
The impact on Coinbase, MicroStrategy and Cipher Mining is slightly different, but they will all make more money as Bitcoin grows. I mentioned Coinbase’s custody advantage and it will also make money with higher trading volume.
MicroStrategy has a leveraged position in Bitcoin, so it’s no surprise that its stock price has exaggerated Bitcoin’s movement. Cipher Mining will also see more revenue and higher margins if Bitcoin rises. The company also held 2,142 Bitcoin as of last month.
Bitcoin’s volatility is a natural result of how much the asset is traded. What has been interesting to observe is how Bitcoin is trading in relation to the rest of the market.
The future of Bitcoin in finance
2024 Crypto Sentiment Has Been Dominated by ETF Approval. Bitcoin ETFs were approved earlier this year and Ethereum ETFs were recently approved. This has caused billions of dollars to flow into the cryptocurrency market and pushed values higher.
What is unclear is whether this will last as funds exit ETFs or if an economic downturn occurs. Bitcoin crashed the last time the economy and stock market crashed and that could happen again. There are signs that the market is becoming overvalued and that the economy is weakening in some areas. If rates are not cut soon due to persistent inflation, a market pullback seems likely.
The story continues
While Bitcoin’s rebound has been impressive, I’m more interested in companies doing something innovative with blockchain, like Coinbase, which benefits from Bitcoin’s higher prices but also makes money in a multitude of other ways.
Bitcoin appears to be overpriced given the lack of utility and the potential for an economic recession. But that didn’t stop the market this week.
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Travis Hoium has positions in Coinbase Global and Ethereum. The Motley Fool has positions and recommends Bitcoin, Coinbase Global, and Ethereum. The Motley Fool has a disclosure policy.
Why Crypto Stocks Skyrocketed This Week was originally published by The Motley Fool