Some portions of the crypto market came to life this week, led by Bitcoin (BTC +1.26%). The token with the largest market cap in the world was driven by a resurgence in risk-taking this week following a few weeks of uncertainty around geopolitics and the Federal Reserve's next move. All of that led Bitcoin to jump 10.1% over the past seven days as of 2:40 p.m. ET Friday.
Bitcoin's move led to some big moves among leveraged Bitcoin players. According to data provided by S&P Global Market Intelligence, Bitcoin holder MicroStrategy (MSTR 0.17%) was up as much as 33.6% this week before dropping slightly and trading 28.8% higher as of this writing. Miners Marathon Digital (MARA 1.34%) jumped 21.7% at its peak, Riot Platforms (RIOT 0.54%) was up 21.7%, and Hut 8 (HUT +4.02%) was up 19.5%. They are currently up 28.8%, 9.3%, and 13.9% for the week.
CRYPTO: BTC
Key Data Points
Bitcoin's big move
The value of Bitcoin had fallen over the last few weeks after the halving that cut the reward for mining a new Bitcoin in half. It didn't help that investors were worried the Federal Reserve would keep interest rates higher or that conflict in the Middle East and Eastern Europe continued to ramp up. Since Bitcoin trades correlated more with growth stocks than as a hedge to the Fed's moves, these uncertainties caused Bitcoin to fall.
Early this week, the return of some risk-taking driven by pandemic-era personalities caused a number of stocks to jump dramatically, and not surprisingly, those moves made their way to the crypto market. What's not clear is if that trading dynamic, which ultimately didn't drive fundamental value to any companies, will keep the market propped up.
Leveraging Bitcoin
In the meantime, companies that are leveraged to Bitcoin are the biggest beneficiaries. MicroStrategy has been one of the most bullish voices in the Bitcoin market and has been buying the token with debt in recent years. That means the stock will tank if the value of Bitcoin drops, and when it rises the stock can skyrocket as well.
Miners have a double benefit if Bitcoin rises. Not only does that mean what they mine is more valuable, they also hold Bitcoin on their balance sheets, leveraging the impact of the token's rise.
This is the balancing act of investing in either MicroStrategy or Bitcoin mining stocks.
NASDAQ: MSTR
Key Data Points
Will the pop last?
Some of the same dynamics that led to the crypto market's peak in 2021 appear present today. Stocks are extremely highly valued, and the market is overlooking weakening fundamentals and an economy that's starting to show signs of strain. It doesn't seem like that would affect Bitcoin, but I mentioned earlier that Bitcoin trades more like a growth stock than a hedge to financial markets.
We have also seen tens of billions of dollars flow into the crypto industry after crypto exchange-traded funds (ETFs) were approved and more people began trading again. Those trends may not last if the economy slows. As a result, I'm staying out of Bitcoin and the stocks leveraged to Bitcoin because the risk right now isn't worth the potential reward.
