Shares of several companies with deep ties to the cryptocurrency market soared on Tuesday, Feb. 2. Cryptocurrency asset manager Riot Blockchain (RIOT -1.06%) gained as much as 10.1%, Chinese-American cryptocurrency mining expert Marathon Patent Group (MARA -0.82%) reached a high of 11.6%, and Canadian crypto-mining company Hive Blockchain (HIVE -1.28%) peaked at 12.3%. Data analytics specialist MicroStrategy (MSTR -0.20%), which has converted its long-term cash reserves into direct bitcoin holdings, also followed suit with a 6.8% gain as of 3 p.m. EST. The stocks are surging because many of the leading cryptocurrency tokens are on the rise today, which should translate into stronger financial results for all of these companies.
Bitcoin prices are up by 5.6% in 24 hours, and Ethereum prices have gained 12.5% over the same period. Ripple stabilized after a wild weekend, and that token for cross-border transactions has now gained 42% in seven days. Other big names gaining more than 10% today include Ethereum competitor Cardano and the bitcoin alternative known as Litecoin.
Cryptocurrencies are known for their volatile price swings, often crashing or soaring for no particularly good reason. That's not the case today, because the blockchain-based sector actually has some solid news to share.
- Index funds manager Bitwise Asset Management announced a new bitcoin fund, intended to provide an alternative to the popular Grayscale Bitcoin Trust (GBTC 1.00%) with lower management costs and under the wing of asset management giant Fidelity (FNF -0.07%). If approved by financial regulators, this fund will help bitcoin's liquidity and price stability while putting pressure on first-movers like Grayscale to improve their existing fund options.
- The cryptocurrency exchange Gemini, managed by the Winklevoss twins of Facebook fame, is launching interest-bearing cryptocurrency accounts. Gemini's crypto savings account offers annual percentage yields (APY) of up to 7.4%, which is a generous interest rate next to the national average of less than 0.1%. If this type of cryptocurrency holding accounts becomes common, that could be a solid argument in favor of treating crypto tokens as serious currencies and/or investment assets.
- MicroStrategy isn't done buying bitcoin quite yet. The company announced on Tuesday that it had acquired another 295 tokens worth $10 million in cash. The company now holds 71,079 bitcoin, worth $2.54 billion at current bitcoin prices. The original purchase price for this bitcoin reserve was approximately $1.15 billion. Larger corporations following MicroStrategy's lead to move a portion of their long-term investments into bitcoin and other crypto tokens could make a world of difference to the financial stability of these markets.
On top of all that, business magnate and Tesla CEO Elon Musk has been supporting the not-so-serious Dogecoin token in a series of tweets recently, but last night he said that those were all jokes. In reality, Musk believes that "bitcoin is a good thing" and is a supporter of this specific token. He also said that bitcoin is "on the verge of getting broad acceptance by conventional finance people." When the world's richest man speaks, markets react.
Nobody knows where bitcoin, Ethereum, and other cryptocurrencies are going next, especially since governments around the world are still developing their legal and regulatory frameworks for handling these innovative but risky digital assets.
I happen to have a collection of various cryptocurrencies myself, all created from a very small bitcoin buy six years ago. So far, I see these tokens more as a fun experiment than a serious investment. That could change as the regulatory system develops and the cryptocurrency market crystallizes into something solid. For now, I'm happy to watch the crypto stocks above from the sidelines.