crypto strategy

How Marathon, Riot, MicroStrategy and Grayscale Bitcoin Trust Soared This Week

What happened

According to data from S&P Global Market Intelligence, companies and funds with direct ties to the crypto market are having a great week as the major cryptocurrency finally has some good news to report. Here’s how a handful of titles intimately related to Bitcoin (CRYPTO: BTC) unfolded this week, from Wall Street’s closing bell at 4 p.m. ET last Friday until the corresponding bell time on Thursday, January 12:

MARA given by Y-Charts.

For those unfamiliar with these crypto-friendly titles, Digital Marathon (NASDAQ: MARA) and Riot platforms (NASDAQ: RIOT) specialize in mining new Bitcoin tokens with renewable energy and ultra-specialized computing platforms. MicroStrategy (NASDAQ: MSTR) is a data analytics company that has converted nearly all of its cash reserves to Bitcoin, pouring more money into the cryptocurrency through new debt, stock sales and cash flow from software activity. At last, Grayscale Bitcoin Trust (OTC: GBTC) is neither a company nor a stock, but a closed-end fund that only holds Bitcoin on its balance sheet. These are four of the largest concentrated Bitcoin holdings on the planet.

Bitcoin itself gained 6.4% over the same period and continued to climb after Thursday’s market close. As of 8:30 p.m. ET, the oldest and largest crypto had gained 11.2% since Friday afternoon.

So what

There was a lot going on in crypto-land this week. Let’s stick to the big picture of Bitcoin’s action, as others have based their earnings directly on this.

Friday morning’s jobs and wage growth report was good but not fantastic, which was exactly what the Federal Reserve was hoping for. The dream scenario these days is a lukewarm economy, allowing the Fed to slow the pace of interest rate hikes. This was good news for high-risk investments, including Bitcoin and the stocks mentioned above.

Bullish signs for the global economy continued to build as the week progressed, supported by positive financial reports and cautiously upbeat comments from federal regulators. And then, Bitcoin opted for a more obvious bull run on Thursday for several reasons. The morning inflation report showed stabilizing trends. The Hong Kong-based asset management arm of South Korean tech giant Samsung has unveiled an upcoming exchange-traded fund based on Bitcoin futures. The government of El Salvador passed a complex new law to regulate cryptocurrency trading in the country, which adopted Bitcoin as legal tender last year.

This burst took Bitcoin to prices not seen since last November, surpassing $18,000 per coin and briefly breaking above the $19,000 level on Thursday afternoon.

The fund and stocks mentioned above are extremely sensitive to Bitcoin’s price movements, amplified by the additional risk these organizations take on to take full advantage of the cryptocurrency’s expected long-term price gains. Marathon, Riot, and MicroStrategy have a lot more debt than money and may have to sell Bitcoin from time to time just to keep the lights on.

Many investors expect to be crushed during low bitcoin price periods, with short selling interest ranging from 20% of all Riot stock to around 45% for Marathon and MicroStrategy. And Grayscale Bitcoin Trust holds 631,628 Bitcoins worth around $12.0 billion at current crypto prices, but the total market value of the fund is only $7.3 billion. Thus, you can effectively gain exposure to Bitcoin at a 40% discount through the Grayscale fund, as investors see more risk than promise in Grayscale’s Bitcoin plans.

Now what

Don’t get too excited about the massive weekly gains in Bitcoin stocks. They are all still trading well below their 52-week highs and even further below the multi-year highs they set in November 2021. MicroStrategy, for example, trades are 61% below its 52-week highs , and it’s the lightest price drop on my list. Shares of Marathon and Riot are down more than 70% each.

In this context, this week’s encouraging news and the rise of the market are a reminder that these alternative investments in Bitcoin carry both greater promise and risk than the cryptocurrency itself. That’s fine if you don’t mind the high risk and volatility, but it also makes sense to see massive interest in shorting these securities.

In other words, please exercise caution around these hyper volatile investment options. Bitcoin miners and dedicated crypto investors can be explosive, both in the “soaring” sense of that word and in the ordinary destructive sense. As disappointing as that thought may be when you recall Bitcoin’s wild price swings over the past few years, buy bitcoin directly looks like a lower risk strategy.

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Anders Bylund has positions in Bitcoin and Grayscale Bitcoin Trust. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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