What happened

Bitcoin is officially in a bear market, having fallen roughly 28% from all-time highs reached earlier this month. Falling this far has logically impacted cryptocurrency stocks, including those companies holding bitcoin, mining bitcoin, and providing mining equipment. Here are some movers today as of 2:30 p.m. EST:

While the price of bitcoin is having its effect, it's possible some of these stocks are being indirectly impacted by the GameStop short squeeze. 

A red arrow points down and goes through the floor with a man looking on.

Image source: Getty Images.

So what

Before we talk about the GameStop effect, let's handle MicroStrategy's special case. This company's stock price is more tied to the price of bitcoin than are the other cryptocurrency stocks here. That's because it holds 70,784 bitcoin tokens on its balance sheet, worth more than $2.1 billion at the current price of $30,000 per token. As a mid-cap company, this means an outsize portion of MicroStrategy's value is directly derived from the current market price of bitcoin. As the cryptocurrency goes up and down day by day, so too will MicroStrategy stock.

MicroStrategy holds this much bitcoin because of its new corporate policy. All excess cash is to be held on the balance sheet in bitcoin. It's a policy CEO Michael Saylor hopes more companies will institute. Therefore, the company is holding a conference called Bitcoin for Corporations on Feb. 3, where Saylor will explain what companies need to consider before instituting a similar policy. But Marathon Patent Group apparently doesn't need any convincing at a conference; it's already doing what MicroStrategy does.

On Jan. 25, Marathon announced it used $150 million to buy 4,812.66 bitcoin tokens. As a bitcoin mining company, it was already subject to the volatility in its price. But now the stock's value will be even more closely tied to the popular cryptocurrency. Like MicroStrategy, expect Marathon stock to closely track bitcoin's movements.

This reality addressed, I believe there's a GameStop effect in play for Marathon, Riot Blockchain, Bit Digital, Hut 8 Mining, and Canaan today. These stocks have all surged in recent months on extreme trading volume. Traders piled into these former penny stocks hoping for quick gains -- and boy, they got 'em!

MARA Chart

The three-month returns of cryptocurrency stocks, bitcoin, and the S&P 500. MARA data by YCharts.

The thing with short-term traders is just that: They don't stick around long term. As long as they believe there's money to be made (like when the price of bitcoin is rising), then they'll pile in footloose and fancy-free. But as soon as hotter trades present themselves, they'll cash out and move on. And considering that highly shorted stocks like GameStop, AMC Entertainment Holdings, and Express are currently surging more than 100% and 200% in a single day, hotter trades are here, folks. 

This theory is just a guess on my part, but an educated guess nonetheless. For evidence, consider the trading volumes of these stocks. For example, the average trading volume for Riot Blockchain stock over the last three months is over 26 million shares, according to Yahoo! Finance. Today, it's just 10.6 million so far. Or how about Bit Digital? Its three-month average is almost 7 million shares. Today, it's just 1.6 million. 

That's still a lot of volume, but it's falling fast. To me, this indicates that cryptocurrency stocks have lost a little bit of their appeal with traders. And we all know what comes after the pump. 

Stacks of golden coins display the bitcoin symbol.

Image source: Getty Images.

Now what

Investing in cryptocurrency stocks is no different than investing in any other stock. When you find a growing company serving a large and growing addressable market with great profit potential, those are good candidates to beat the market over long periods of time. Buying those stocks at reasonable valuations can make the investments even better.

Over the long term, I would expect bitcoin mining companies to struggle to create shareholder value. Revenue-growth potential does increase when the price of bitcoin goes up. But higher bitcoin prices usually mean increased competition, requiring these companies to spend big to amp up their computing power. And manufacturers of bitcoin mining equipment like Canaan also struggle, since sales tend to be cyclical.

As always, try not to be motivated by the highs and lows in the short term. Keep your eyes at least three to five years down the road to improve your investing decisions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.