What happened
Shares of six cryptocurrency-mining companies traded as much as 10% to 40% higher this morning, following a big rise in the cryptocurrency market over the weekend. The following companies were trading up as of 12:20 p.m. EDT:
- Bit Digital (BTBT +3.57%), up 29%
- Hut 8 Mining Corp (HUT +0.00%), up 17.4%
- Bitfarms (BITF +1.97%), up 18.6%
- Marathon Digital Holdings (MARA +0.24%), up 15%
- Canaan (CAN +3.55%), up 8%
- Ebang International Holdings (EBON 8.56%), up 4.4%
So what
Cryptocurrency mining is a key element of the decentralized blockchain technology. The actual process involves high-powered computers and hardware using specialized software to essentially solve math problems or computational puzzles. Mining serves two important purposes: It verifies transactions that are sent between people on the blockchain ledger, which adds trust to the network, and it creates new tokens of various cryptocurrencies.
Because the competition to mine and obtain new tokens of highly valuable cryptocurrencies like Bitcoin (BTC 1.41%) has gotten so intense, the miners have to solve the problem first to get the reward, which is free cryptocurrency tokens. And this requires very fast computers and hardware to solve the problems, which can be a very energy-intensive process.
Image source: Getty Images.
Cryptocurrency mining stocks tend to move in tandem with the cryptocurrency market and offer investors a way to get exposure to cryptocurrencies without having to actually purchase them. Between Friday night and this morning, the price of Bitcoin jumped from the $32,000 range to above $39,000, which sent other cryptocurrencies and other crypto-associated stocks jumping with it. The surge is currently being attributed to bullish comments from Twitter CEO Jack Dorsey and Tesla CEO Elon Musk, who have been known to influence the price of cryptocurrencies with comments on social media.
One of the issues for cryptocurrencies and crypto-mining stocks lately has been in China, where many of the companies mentioned above are headquartered. The Chinese government in recent weeks has cracked down on cryptocurrency mining in several provinces or regions in the country due to its own environmental policies and how much power mining now consumes. The energy-intensive proof-of-work mining process, which Bitcoin and many other cryptocurrencies use, has come under fire globally for how harmful it is to the environment. But experts also say the initial shock of China's crackdown and the environmental concerns may be starting to wear off.
Now what
The biggest factor driving the movement of crypto-mining stocks is the price of Bitcoin and other cryptocurrencies, which all tend to move together. The weekend jump in the cryptocurrency market fueled the rise of crypto-mining stocks. So these should continue to remain volatile, as the price of Bitcoin rose to roughly $65,000 per token earlier this year only to fall below $30,000 at one point.
Another big factor to consider is where these companies are operating. Obviously, any of them that operate in China are going to be risky because we don't know what the Chinese government will do. Some in response have begun to move out of China. For instance, Bit Digital is currently in the process of moving 45% of its Bitcoin miners from China to the U.S.
Bit Digital led the crypto-mining stocks above in gains today, so investors picking companies that are less likely to be affected by regulation or sudden crackdowns could be a factor as well.
