Why cryptocurrencies and crypto stocks have jumped this week

[ad_1]

What happened

Shares of cryptocurrency stocks rose sharply this week, according to data provided by S&P Global Market Intelligence, while cryptocurrencies like Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) saw a strong rally. Bitcoin jumped on information over the weekend that Amazon was looking to accept cryptocurrency as early as this year for retail orders. These rumors were dismissed midweek, but Amazon admitted it was exploring the crypto space.

Bitcoin rose 15.7% between the close of markets a week ago Friday and early Friday and hit over $ 40,000 during the week. Ethereum rose 10.8% over the same period.

Over the past week, MicroStrategy (NASDAQ: MSTR) rose 15.8%, Grayscale Bitcoin Trust (OTC: GBTC) rose 25.6%, Riot Blockchain (NASDAQ: RIOT) jumped 13.5 % and Bit Digital (NASDAQ: BTBT) jumped 88.2%.

Image source: Getty Images.

So what

The decision of MicroStrategy and Grayscale Bitcoin Trust was clearly motivated by the price change of Bitcoin itself, as it is the asset they hold on the balance sheet.

Riot Blockchain and Bit Digital are a little different as miners because their margin is going to be determined by the price of Bitcoin. So, they will evolve with cryptocurrency just like a commodity, but not necessarily so directly.

One of the big news from this group was the announcement by Bit Digital of a second strategic co-mining agreement with Digihost Technology. Bit Digital will provide a 100 megawatt Bitcoin mining system that Digihost Technology will host for two years. The deal is expected to increase the hash rate by 20%, which has pushed the stock higher this week.

Now what

Bitcoin, Ethereum, and other cryptocurrencies continue to be extremely volatile, and this week it has worked in investors’ favor. Taking a step back, Bitcoin is still sharply lower from its highs this spring. And crypto-related businesses, especially miners like Riot Blockchain and Bit Digital, are also on the decline. So the long term trends are not as positive as what we have seen this week.

BTBT data by YCharts

We just don’t know where Bitcoin, Ethereum, or any other cryptocurrency is heading, but when they have big moves like this, we can expect crypto stocks to move with them.

What I will be monitoring next month is how the income from Bitcoin miners is coming in. The industry has experienced strong growth as Bitcoin has grown and more transactions are processed, but deals like the one Bit Digital announced could improve margins and net income in the short term.

Investors should expect volatility to continue in cryptocurrencies. It’s just the price of admission for the industry, so next week might as well reverse the gains we’ve seen this week.

This article represents the opinion of the writer, who may disagree with the official recommendation position of a premium Motley Fool consulting service. Were motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

[ad_2]