Bitcoin (BTC +1.46%) has been on fire this week, rising 12% over the past seven days as of 2 p.m. ET on Friday. Investors have been in "risk on" mode this week as trade tensions between the U.S. and nearly every country in the world seem to be easing, for now.
That helped companies downstream of Bitcoin's price, like Bitcoin miners. TeraWulf (WULF 3.00%) is up 36% this week, Riot Platforms (RIOT 8.53%) jumped 26.1%, and MARA Holdings (MARA 6.53%) is up 17% for the week.
NASDAQ: MARA
Key Data Points
Bitcoin's big move
Cryptocurrencies have jumped this week as trade tensions eased around the world. The tensions didn't technically have anything to do with cryptocurrencies, but they certainly impact the value of tokens.
Bitcoin, in particular, has proven to be highly correlated with growth stocks and magnifies the market's move in general. So, when investors bought growth stocks earlier this week, it's no surprise that Bitcoin was up sharply as well.
What's interesting about the move recently is that Bitcoin hasn't been a hedge to the market or a safe haven to investors. Gold rose as the market fell, which is what many investors would expect Bitcoin to do, but it didn't, falling with the rest of the market.
Why Bitcoin miners were up so much
So, why were Bitcoin miners up more than Bitcoin itself? They tend to be a leveraged bet on the price of Bitcoin for two reasons.
First, Bitcoin is their source of revenue, and when Bitcoin rises, they all make more money. The second impact is the Bitcoin they already hold on the balance sheet. MARA Holdings had 46,000 Bitcoins at its last disclosure, Riot Platforms has 19,223 Bitcoins, and TeraWulf has $274.5 million in cash and Bitcoin.
Higher Bitcoin values quite literally improve their balance sheets.
Leveraged growth in Bitcoin mining
The other big news item for miners this week was Riot Platforms announcing a $100 million credit facility with Coinbase (COIN 7.06%) backed by Bitcoin. Coinbase has begun making loans to consumers with Bitcoin as backing, but this is the biggest deal it's done with a corporation.
If Riot and others can use Bitcoin as collateral for loans that will fund growth, it could be another catalyst for their businesses. Bitcoin mining hasn't been the easiest business to finance historically so this is welcome news for the industry. Given the high value of Bitcoin on their balance sheets, this could be a great funding source long term.
Bitcoin is the key
Ultimately, the price of Bitcoin is going to determine the fortune of these companies. It's their source of revenue and a huge part of their balance sheets.
Investors also need to keep in mind the leveraged nature of the mining business. Values have gone up sharply as Bitcoin has risen, but if we go through another crypto winter we can see both balance sheets and operations deteriorate quickly. If that kind of risk isn't what you're looking for, Bitcoin is a great alternative.
