What happened
When the stock market closed on Friday, the price of Bitcoin (BTC +0.27%) was around $61,000 and the price of Ethereum (ETH 0.77%) was around $4,500. Both had a great weekend of price appreciation and sit at around $66,000 and $4,800 respectively as of 4 p.m. EST on Monday.
Unlike cryptocurrencies, stocks only trade on weekdays when the market is open. So stocks that benefit from cryptocurrencies, like Coinbase Global (COIN +3.18%), Riot Blockchain (RIOT +7.20%), and CleanSpark (CLSK +10.64%), were adjusting today to the weekend moves. These stocks finished 5%, 17%, and 9% higher respectively.
Image source: Getty Images.
So what
Companies like Riot Blockchain and CleanSpark are playing a large role in the price of Bitcoin going up in 2021. Both are Bitcoin miners and the mining process unlocks new bitcoins over time. However, neither company has been selling much of its holdings. Therefore, even though Bitcoin's supply is increasing by design, the supply available from trading is constrained since miners are largely hanging on to their bitcoins.
Last week, both companies updated their shareholders regarding current Bitcoin mining production. In October, Riot Blockchain mined 464 bitcoins whereas CleanSpark mined 216 bitcoins. For its part, Riot Blockchain hasn't been a seller. CleanSpark, on the other hand, has mined 1,083 bitcoins so far in 2021 but has sold 370 bitcoins so it can fund the growth of its business.
All told, Riot Blockchain is holding 3,995 bitcoins and CleanSpark is holding 729 bitcoins. Therefore, since the price of Bitcoin rose significantly over the weekend, these companies are worth more today, which is why both spiked higher.
Of course, as the price of Bitcoin continues to rise, it creates more interest in cryptocurrencies from retail investors, to the benefit of companies like Coinbase. In the first half of 2021, the company processed an astounding $242 billion in trading volume from Bitcoin alone.
As eye-popping as that number is, it's just a fraction of the $800 billion Coinbase has processed in the first half of 2021. This trading volume is great news for the company's shareholders, considering it generates revenue from trading fees. And since Bitcoin, Ethereum, and many other cryptocurrencies traded on higher volume over the weekend, Coinbase was a likely beneficiary, explaining the stock's upward move today.
It's also interesting to note that Bitcoin has been decreasing in significance for Coinbase over time. And Ethereum has been one of the primary cryptocurrencies that traders have switched to. Consider that in the second quarter of 2021, 26% of Coinbase's trading volume came from the trading of Ethereum compared to just 24% for Bitcoin.
Now what
Ethereum is currently in the middle of a big switch from being a proof-of-work blockchain to being a proof-of-stake blockchain. To spare the nitty-gritty details, this does change the supply of Ethereum available for trading. And with demand increasing, as evidenced by Coinbase's trading volumes, this is causing the price to keep rising. This is something that could continue to cause Ethereum to go up, to say nothing about its ongoing adoption in real-world applications.
Regarding Coinbase, it's scheduled to report financial results for the third quarter of 2021 tomorrow after the market closes. Wall Street analysts are pretty divided on what the company will report. For its part, management didn't give specific guidance for Q3 and only said it would experience a decline in monthly transacting users and trading volumes as compared to the second quarter.
But considering how well the cryptocurrency market has held up in the second half of 2021 so far, Coinbase could surprise a lot of investors when it reports.
