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Volatility Spiked in the Cryptocurrency Mining Space This Week -- Here's Why

By Chris MacDonald – Nov 12, 2021 at 4:05PM

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The industry is inherently volatile, but this week that volatility ramped up significantly.

What happened

This week was a rather volatile one for the investors in cryptocurrency miners. And that's saying something.

U.S.-based Riot Blockchain (RIOT 3.26%) has performed better than its peers, posting weekly intraday highs of nearly 40% this week, from last Friday's close. Rival Canaan (CAN 4.24%) also had a solid week, trading 23% higher at its peak this week compared to last, with SOS Limited (SOS 1.95%) coming in as the laggard, down approximately 30% on a week-over-week basis.

These moves reflect the kind of volatility that investors can expect in the crypto mining sector. Positive gains seen by Riot and Canaan appear to be driven by Bitcoin and Ethereum prices, which continue to hover around their all-time highs.

However, for SOS, this week was less than stellar. The company's 30% drop midweek pushed this stock to its lowest level in a year. This move came as the company announced a private placement at a substantial discount to its market price.

Cryptocurrency mining equipment on a table.

Image source: Getty Images.

So what

Cryptocurrency prices continue to remain red hot right now. For Bitcoin and Ethereum miners, that's a very good thing.

These crypto miners' fundamentals are entirely beholden to the spot prices of these two major proof-of-work cryptocurrencies. When the crypto market heats up, so too do the valuations of companies set out on mining those tokens.

Performing a discounted cash flow or other traditional fundamental modeling on such companies can be difficult, due to the volatility inherent in the crypto market. Accordingly, the momentum-driven moves in cryptocurrency prices tend to drive volatility in the valuations of crypto miners. With positive momentum in crypto prices of late, Riot and Canaan have reaped the benefits of this environment.

For SOS, it appears a lack of institutional investor interest in this crypto mining stock has some retail investors worried. This week's private placement announced at an 18% discount sent a very negative signal to investors. 

Now what

Right now, it appears investors looking at the cryptocurrency mining space are increasingly gravitating toward Riot and Canaan. As a way of playing the volatility in cryptocurrency prices, these crypto mining stocks can provide attractive leverage for investors seeking a publicly traded option in the crypto world.

However, the volatility that SOS stock saw this past week should be noted by investors. This remains a highly speculative space, and one that's not for the average, risk-averse investor. Those looking to put some risk capital to work should remember to do so in a prudent, diversified manner, with proper position sizing.

Chris MacDonald owns shares of Ethereum. The Motley Fool owns shares of and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

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