The crypto industry came to life this week driven by gains from Bitcoin (BTC 3.06%). Economic news this week was a bit mixed with a strong jobs report coming out on Friday after OPEC maintained oil production cuts earlier in the week. Bond yields rose as investors pushed out expectations for a rate cut.
According to data provided by S&P Global Market Intelligence, shares of Coinbase Global (COIN 2.67%) rose as much as 16.5% for the week, MicroStrategy (MSTR 1.82%) was up as much as 12.7%, and Cipher Mining (CIFR 4.30%) rose 23.2%. Shares are up 9.8%, 5.9%, and 9.7% respectively as of 3 p.m. ET.
CRYPTO: BTC
Key Data Points
Bitcoin's reaction
At different times, Bitcoin has been viewed as a hedge against the traditional economic system and an asset fueled by low interest rates like growth stocks. This week, it benefited from OPEC's announcement the most, which was interpreted by the market as a sign the economy isn't as strong as expected.
One of the odd market dynamics was Bitcoin being alone in making a big move higher this week. But that was because the cryptocurrency has had more than two straight weeks of daily inflows into Bitcoin exchange-traded funds (ETFs). That will have a direct impact on Coinbase's custody business, but ETF flows have also correlated with Bitcoin's rise in price.
How Bitcoin boosts crypto stocks
The impact on Coinbase, MicroStrategy, and Cipher Mining are a little different but they'll all make more money as Bitcoin rises. I mentioned Coinbase's custody benefit and it will also make money on higher trading volume.
MicroStrategy has a leveraged position in Bitcoin so it's not surprising its stock price has exaggerated the move in Bitcoin. Cipher Mining will also see more revenue and higher margins if Bitcoin rises. The company also held 2,142 Bitcoins as of last month.
Bitcoin's volatility is a natural outcome of the amount of trading in the asset. What's been interesting to watch is how Bitcoin trades in relation to the rest of the market.
Bitcoin's future in finance
2024's crypto sentiment has been dominated by the approval of ETFs. Bitcoin ETFs were approved earlier this year and Ethereum ETFs were recently approved. That's caused billions of dollars to flow into the crypto market and has driven values higher.
What's not clear is if that will last when funds flow out of ETFs or if there's an economic downturn. Bitcoin dropped last time the economy and stock market fell and that could happen again. There are signs the market is getting overvalued and the economy is weakening in certain pockets. If rates aren't cut anytime soon because of stubborn inflation, a market pullback looks likely.
While Bitcoin's bounce has been impressive, I'm more interested in the companies doing something innovative with the blockchain, like Coinbase, which benefits from higher Bitcoin prices, but also makes money in a multitude of other ways.
Bitcoin seems to be overpriced given the lack of utility and potential for an economic downturn. But that didn't stop the market this week.
