What happened
Today's been a wild ride in the crypto world, with the entire crypto market surging 6.2% over the past 24 hours, as of 3:45 p.m. ET. Over this same time frame, top cryptocurrency Bitcoin (BTC 0.16%) surged 5.8%, driving most of the market's gains today.
However, other Bitcoin-related companies saw surges that, in some cases, exceeded Bitcoin's gain today. From yesterday's close, Bit Digital (BTBT 10.61%) and Riot Blockchain (RIOT 23.11%) appreciated 8.4% and 6.9%, respectively, as of 3:45. p.m. ET. Two smaller-cap Bitcoin-related businesses, CleanSpark (CLSK 10.99%) and Bit Mining (BTCM 35.68%), saw more muted gains, rising 3.8% and 1.5%, respectively.
Image source: Getty Images.
So what
Today's rally in Bitcoin has driven the outsize returns some crypto miners have seen today. It should be noted that each of these crypto miners saw double-digit gains this morning, as Bitcoin surged 11% over a 24-hour period in earlier trading. However, with the market calming down, this afternoon has seen crypto miners follow suit, with their downside volatility also outpacing Bitcoin's decline.
Crypto miners earn the majority of their revenue from mining Bitcoin. Typically, these miners have high fixed costs, denominated in dollars, with revenue streams in the form of Bitcoin. When the price of Bitcoin appreciates relative to the U.S. dollar, these companies tend to outperform, as the impact on these companies' bottom line is disproportionately affected by this exchange rate.
Thus, crypto miners are often viewed as higher-leverage ways to gain exposure to Bitcoin prices, via publicly traded companies. For those who may not wish to dabble in crypto outside of Bitcoin-linked equities, these are often go-to investments.
Now what
The higher-leverage exposure to Bitcoin prices these miners provide has certainly worked in their favor of late. Forced liquidations of mostly short positions against the cryptocurrency have accelerated Bitcoin's rise to the upside.
However, as we've seen in recent months, the leverage-linked higher-volatility moves Bitcoin has seen of late have also driven underperformance among crypto miners relative to Bitcoin. Those looking for a way to play this sector should be aware of the volatility-linked risks of doing so via Bitcoin miners.
Right now, this group of stocks will be one I will continue to monitor on my watch list. As far as investing in crypto miners go, this group of stocks is simply outside of my risk tolerance range.
