What happened

It's been an interesting week for cryptocurrencies. Early Saturday morning, the price of Bitcoin (BTC -1.73%) dropped to about $30,400, then steadily rose for the rest of the weekend. By the time the stock market opened on Monday, Bitcoin had returned to the levels it was trading at on June 24, which provided a boost to stocks like MicroStrategy (MSTR -0.35%) and Riot Blockchain (RIOT 2.26%). While they're down a little now from their weekly highs, these two stocks were still up 17% and 10% respectively as of market close on Thursday.

Of course, Bitcoin isn't the only cryptocurrency that's rising in value. Notably, Ether -- the token native to the Ethereum (ETH -2.43%) blockchain -- has risen by around 5% since Monday morning. On the surface, rising values for cryptocurrencies look like a good thing for cryptocurrency exchange Coinbase Global (COIN -4.75%), which explains why it's up by about 8% so far this week. However, some analysts have noted that cryptocurrencies' overall volatility is going down. That's not good for Coinbase's business, which is why the stock gave back some of its gains on Thursday.

A person looks pleasantly surprised at a computer.

Image source: Getty Images.

So what

MicroStrategy and Riot Blockchain both own bitcoins -- but they acquired them by very different means. As of June 21, MicroStrategy held over 105,000 bitcoins, most of which it purchased with financing from convertible note offerings. These notes carry an interest rate and will eventually come due, meaning MicroStrategy management is counting on Bitcoin's returns to outpace these costs. It's a multibillion-dollar gamble that's currently paying off, considering it purchased its Bitcoin stake at an average price of $26,000 per token.

By contrast, Riot Blockchain validates transactions on the Bitcoin blockchain and is compensated for this service with Bitcoins. In other words, Bitcoin is MicroStrategy's capital allocation strategy, but it's Riot Blockchain's business. In May, Riot Blockchain mined 227 Bitcoins and was holding around 2,000 Bitcoins as of May 31. It should come as no surprise that these stocks rose when Bitcoin's value did.

It was a quiet week for Bitcoin news, but Motley Fool contributor Bram Berkowitz provided some insights as to why Ethereum has been trending higher in recent days. Developers for the Ethereum blockchain network want to transition it to a completely different model -- from proof-of-work to proof-of-stake -- which will make it less of an energy hog. The project is called Ethereum 2.0, and observers note that the network is quickly approaching 6 million Ether being staked. For perspective, that's over 5% of the total supply of the tokens even though Ethereum 2.0 only launched in December. So it seems the transition of blockchain models is progressing well, and that may partly explain why Ethereum has been going up.

That said, there's been a reduction in the price volatility of Bitcoin and Ethereum in recent weeks, which has some analysts pondering Coinbase. As a reminder, 91% of the company's revenue in the first quarter was generated from retail investors' transaction fees. And retail investors tend to transact more when cryptocurrencies are more volatile. This has Mizuho analyst Dan Dolev worried about what Coinbase's third-quarter results look like. According to a brief on finance news website TheFly Thursday, Dolev believes the company's second quarter will be good, but he expects Q3 guidance will be weak, which is why he's maintaining a $225 price target for Coinbase stock -- lower than where it closed trading Thursday.

A smartphone displays holographic images of symbols that represent various cryptocurrencies.

Image source: Getty Images.

Now what

There's quite a variety of business models in the cryptocurrency space. However, the fates of companies like MicroStrategy and Riot Blockchain are tied to what's going on with Bitcoin in particular. Therefore, investors in either of these companies need to understand the thesis for Bitcoin first and foremost. Like Ethereum, Bitcoin is also going through a big transition as it prepares to implement software called Taproot that will give its blockchain more functionality. 

If there's any company in the cryptocurrency space that investors ought to get to know, in my opinion, it's Coinbase. According to TipRanks, analysts' price targets for it range from $225 per share to $650 per share. To me, that wide range suggests there's a lot of confusion when it comes to Coinbase's business and how it can create value over time. That confusion may provide investors an opportunity.

Don't overlook that its revenue is correlated with retail trading volumes -- for now, Coinbase benefits from volatility. But with 56 million users, perhaps the company has some optionality to expand into other cryptocurrency services that could give its revenues more stability. I'm not saying it's a stock to buy today. But with that many users and with analysts' opinions so divided, it's certainly not a stock investors should blindly dismiss either.