The stock market has been off since Dec. 29, but the crypto market has been open, leaving four days of catch-up for equity investors. So, a relatively modest move of 3.6% over the last 24 hours for Bitcoin (BTC +0.83%) has driven a double-digit increase in crypto-related stocks.
If we go back to the market close on Friday, Bitcoin's value is up 7.3% after a big increase in value on Monday. MicroStrategy (MSTR 0.17%) responded by jumping as much as 15.2% in early trading Tuesday, and Bitcoin miner Riot Platforms (RIOT 0.54%) was up 10.6%. The two stocks are up 9.6% and 0.8%, respectively, at 3:00 p.m. ET.
CRYPTO: BTC
Key Data Points
Bitcoin drives the market
There was a crypto rally to start 2024, and gains were widespread across the market. But the biggest tokens have seen the most gains as there's a flight to quality in both crypto and the stock market. That's why Bitcoin and Ethereum are up over the last few days, while Solana, Binance, and XRP are about flat.
When Bitcoin rises, it greatly impacts some leveraged Bitcoin plays. MicroStrategy is one of the most impacted, with 158,400 Bitcoin on its balance sheet as of the end of the third quarter of 2023, levered by $2.2 billion of debt.
Riot Platforms produced 552 Bitcoin in November 2023 and sold 540 Bitcoin. However, the company held 7,358 Bitcoin on the balance sheet, so any increase in value for Bitcoin will make the company's balance sheet more valuable.
In the base of both MicroStrategy and Riot Platforms, today's price increase is catching up from four days of the market being closed and Bitcoin rising in value.
NASDAQ: MSTR
Key Data Points
Where does Bitcoin go from here?
It's important to understand the opportunity and risk for the companies we invest in, and for Bitcoin-related companies, there can be some strange impacts. While investors can get direct exposure to Bitcoin by simply buying Bitcoin through a centralized exchange or a crypto wallet, companies like MicroStrategy and Riot Platforms offer even more exposure by holding Bitcoin on the balance sheet.
MicroStrategy levers returns by adding debt, and as a miner, Riot Platforms has operating exposure to Bitcoin.
There continue to be rumors that a Bitcoin exchange-traded fund (ETF) is imminent, but we haven't seen that come to pass. I'm not sure the market's reaction would be positive if an ETF were approved in the U.S. There's often a "buy the rumor, sell the news" reaction from the market, and Bitcoin has been rising for three months in hopes that an ETF is near.
If an ETF is approved, I wouldn't be surprised to see values fall.
Outside of an ETF, Bitcoin has traded hand in hand with growth stocks in the past three years, and that will likely be the case in 2024 as well. If the stock market -- specifically growth stocks -- does well, it would likely be positive for Bitcoin, but a correction could be bad news as investors seek out safety.
Bitcoin hasn't been a safe haven in a falling stock market. So, investors must be aware of the risks and rewards for top cryptocurrencies in 2024.
