Bitcoin and Crypto Stocks Popped Again This Week

Parts of the crypto market have boomed this week, led by Bitcoin (CRYPTO: BTC). The token with the largest market cap in the world has been driven by a resurgence of risk-taking this week after several weeks of uncertainty over geopolitics and the Federal Reserve’s next move. All of this has caused Bitcoin to rise 10.1% over the past seven days as of 2:40pm on Friday.

Bitcoin’s move has led to some big moves among leveraged Bitcoin players. Bitcoin holder MicroStrategy (NASDAQ: MSTR) rose as much as 33.6% this week before falling slightly and trading 28.8% higher as of this writing, according to data provided by S&P Global Market Intelligence. Miners Marathon Digital (NASDAQ:MARA) rose 21.7% to peak, Riot Platforms (NASDAQ:RIOT) was up 21.7%, and Hut 8 (NASDAQ:HUT) was up 19.5%. They are currently up 28.8%, 9.3% and 13.9% for the week.

Bitcoin’s big move

Bitcoin’s value had fallen over the past few weeks following the halving, which halved the reward for mining new Bitcoin. It didn’t help that investors were worried the Federal Reserve would keep interest rates high or that conflicts in the Middle East and Eastern Europe would continue to escalate. These uncertainties caused Bitcoin to decline, as Bitcoin trades were associated with growth stocks rather than a hedge against the Fed’s moves.

Earlier this week, a return of some of the risk-taking behavior driven by pandemic-era personalities caused some stocks to jump dramatically, and unsurprisingly, those moves were reflected in the crypto market as well. What is unclear is whether this trading dynamic, which ultimately provides no core value to any company, will sustain the market.

Leveraging Bitcoin

Meanwhile, companies leveraging Bitcoin are the biggest beneficiaries. MicroStrategy has been one of the most bullish voices in the Bitcoin market, purchasing the token with debt in recent years. This means that if the value of Bitcoin falls, the stock will fall, and when it rises, it can rise sharply.

If Bitcoin rises, miners get a double benefit. Not only does this mean that what they mine is worth more, but by holding Bitcoin on their balance sheets, they benefit from the impact of the token’s rise.

This is the balancing act of investing in MicroStrategy or Bitcoin mining stocks.

Will pop last?

Some of the dynamics that caused the crypto market to peak in 2021 appear to be present today. Stocks are extremely valuable and the market is overlooking weakening fundamentals and an economy that is starting to show signs of strain. This does not appear to affect Bitcoin, but I have previously noted that Bitcoin is trading more like a growth stock than a hedge against financial markets.

The story continues

We’ve also seen tens of billions of dollars flow into the crypto industry as cryptocurrency exchange-traded funds (ETFs) are approved and more people begin trading again. These trends may not last long if the economy slows. As a result, I stay away from Bitcoin and Bitcoin leveraged stocks because the risk is not worth the potential reward right now.

Should you invest $1,000 in Bitcoin right now?

Before buying stocks in Bitcoin, consider this:

The Motley Fool Stock Advisor analyst team identified what they believe are the 10 best stocks for investors to buy right now… and Bitcoin wasn’t one of them. The 10 stocks that made the cut could deliver monster returns in the coming years.

Consider that Nvidia made this list on April 15, 2005… if you had invested $1,000 on the date we recommended, you would have had $578,143!*

Stock Advisor provides investors with an easy-to-follow success plan, including guidance on portfolio construction, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of the S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of May 13, 2024

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has positions in Bitcoin and recommends it. The Motley Fool has a disclosure policy.

Bitcoin and Crypto Stocks Rise Again This Week Originally published by The Motley Fool